Thursday, February 19, 2009
Estate Planning: Wills - Bloomberg: Your Money
So, how important is it to have a will? It's very important, assuming you want to maintain control of your assets and avoid the court system. But, before you grab a sheet of paper, you need to understand what should be done to make sure your will is effective and valid.
SMSF Self Managed Super Funds holding Trust assets
Self Managed Super Funds holding trust assets
by Brett Davies at LawCentral
Question: I am having an ongoing debate with my accountant.
My wife and I are currently the trustees of our SMSF. We are very conscious of the rules and requirements relating to investment and ensuring that our SMSF is compliant. We are aware that investment in a "related trust" is restricted (since 11 August 1999). This means that there are "non-arm's length income provisions in the Income Tax Assessment Act 1997 (ITAA). This all leads us to the conclusion that our SMSF cannot hold an interest in a trust.
Our accountant begs to differ. She says that there are many circumstances that a SMSF can hold an interest in a trust. Can you please clarify this for us?
by Brett Davies at LawCentral
Question: I am having an ongoing debate with my accountant.
My wife and I are currently the trustees of our SMSF. We are very conscious of the rules and requirements relating to investment and ensuring that our SMSF is compliant. We are aware that investment in a "related trust" is restricted (since 11 August 1999). This means that there are "non-arm's length income provisions in the Income Tax Assessment Act 1997 (ITAA). This all leads us to the conclusion that our SMSF cannot hold an interest in a trust.
Our accountant begs to differ. She says that there are many circumstances that a SMSF can hold an interest in a trust. Can you please clarify this for us?
Hybrid Trusts - Where are we now? Where are we going now?
Hybrid Trusts - by Brett Davies at LawCentral.
Last year I discussed the advantages of negative gearing within a Hybrid Trust and the 'new' approach of the ATO when dealing with this.
Hybrid Trusts, as the name suggests, are a combination of a Discretionary Trust and a Unit Trust. Unit holders are entitled to fixed income and/ or capital. However there is still a lot of flexibility for the Trustee to deal with the income and capital of the Trust.
Last year I discussed the advantages of negative gearing within a Hybrid Trust and the 'new' approach of the ATO when dealing with this.
Hybrid Trusts, as the name suggests, are a combination of a Discretionary Trust and a Unit Trust. Unit holders are entitled to fixed income and/ or capital. However there is still a lot of flexibility for the Trustee to deal with the income and capital of the Trust.
Avoiding GST on Family Trust transfers
Avoiding GST on Family Trust transfers - by Brett Davies at Lawcentral
QUESTION: Your articles on transferring commercial property out of family trusts (and into, for example, Self Managed Super Funds) are helpful. However, I still don't understand the GST issues.
What if my client's family trust is not registered for GST?
ANSWER: Your client has a family trust which is not registered for GST.
One of the trust assets is a commercial property. The family trust wants to distribute the commercial property to one of its beneficiaries. This is called an in specie distribution. In these circumstances an in specie distribution is usually not a taxable supply by the family trust. Therefore, there is no GST payable. This is supported by Private Rulings 60695 (2006), 60418 (2006) and Interpretative Decision 2001/503.
As I stated in my previous articles on this topic, if the client's family trust was registered for GST (or was legally required to register for GST) then it is a taxable supply. GST would payable by the family trust. This is the case whether mum and dad as the beneficiaries were registered for GST or not. See Private Ruling 16483 (2002).
When you distribute assets from a family trust and then try and get them into your Self Managed Super Fund many tax issues can arise such as stamp duty, Capital Gains Tax, Fringe Benefit Tax and as you mention GST.
Want to know more:
Self Managed Superannuation Fund Deed - http://LawCentral.com.au
QUESTION: Your articles on transferring commercial property out of family trusts (and into, for example, Self Managed Super Funds) are helpful. However, I still don't understand the GST issues.
What if my client's family trust is not registered for GST?
ANSWER: Your client has a family trust which is not registered for GST.
One of the trust assets is a commercial property. The family trust wants to distribute the commercial property to one of its beneficiaries. This is called an in specie distribution. In these circumstances an in specie distribution is usually not a taxable supply by the family trust. Therefore, there is no GST payable. This is supported by Private Rulings 60695 (2006), 60418 (2006) and Interpretative Decision 2001/503.
As I stated in my previous articles on this topic, if the client's family trust was registered for GST (or was legally required to register for GST) then it is a taxable supply. GST would payable by the family trust. This is the case whether mum and dad as the beneficiaries were registered for GST or not. See Private Ruling 16483 (2002).
When you distribute assets from a family trust and then try and get them into your Self Managed Super Fund many tax issues can arise such as stamp duty, Capital Gains Tax, Fringe Benefit Tax and as you mention GST.
Want to know more:
Self Managed Superannuation Fund Deed - http://LawCentral.com.au
Get money out of your Family Trust?
Family Trusts can now pay Superannuation to its directors - By Brett Davies at Lawcentral
Many Family Trusts have a company as a trustee. That company has a human being as a director. The director wants to get paid. Can the Trustee Company pay him out of the trust assets? Can the Trust (rather than the Company) claim a tax deduction? And can the Company claim a tax deduction for the Director's Superannuation contributions? The good news is that the ATO has said yes.
Traditionally, you couldn't get money directly out of your Family Trust into your Superannuation. This new ATO approach now gives you a window to do this.
Many Family Trusts have a company as a trustee. That company has a human being as a director. The director wants to get paid. Can the Trustee Company pay him out of the trust assets? Can the Trust (rather than the Company) claim a tax deduction? And can the Company claim a tax deduction for the Director's Superannuation contributions? The good news is that the ATO has said yes.
Traditionally, you couldn't get money directly out of your Family Trust into your Superannuation. This new ATO approach now gives you a window to do this.
SMSF Superannuation - who gets it when you DIE?
Superannuation all goes to the oldest son- by LawCentral:
Question: My adviser has suggested that I make binding nomination for my superannuation. This is to ensure that my Super goes to my three children equally at death. I have my own self managed superannuation fund. My eldest child is the co-trustee of the SMSF. I have already made a non-binding direction that the funds are distributed between my children. Surely, if there are any problems, my Will (which also leaves everything in equal shares) deals with this?
Question: My adviser has suggested that I make binding nomination for my superannuation. This is to ensure that my Super goes to my three children equally at death. I have my own self managed superannuation fund. My eldest child is the co-trustee of the SMSF. I have already made a non-binding direction that the funds are distributed between my children. Surely, if there are any problems, my Will (which also leaves everything in equal shares) deals with this?
Superannuation tricks for a 66-year old
Superannuation tricks for a 66-year old by Lawcentral:
QUESTION: In a few years I will be turning 66 years old.
1. Does your Self Managed Superannuation Deed http://www.lawcentral.com.au/CreateDo... allow me contribute to my Super?
2. Can I contribute the full $450k and then start a pension with the smallest minimum withdrawal rate?
3. My wife has died; can the left over Superannuation when I die go to my adult child tax free?
ANSWER: While the age of 65 is important, under our Self Managed Superannuation Deed http://www.lawcentral.com.au/CreateDo... you can contribute to Super until you turn 75 years of age. This is provided after 65 you satisfy the work test. It is an easy test. All you need to do is work for a total of 40 hours in "gainful" employment within any 30-days of a financial year.
Two doors then open up.
Firstly, you can instruct your boss (or yourself if you are self-employed) to stick in up to $100k into your Super. This is a "concessional tax contribution". This means that you put untaxed earnings directly into your Super and don't personally pay any tax on the income. However, your SMSF will peel off 15% of that contribution and give it to the tax man. Still 15% is better than the highest marginal tax rate of 46.5%.
Your boss also gets a full tax deduction for paying your Super.
If you are going to shovel in more than 9% of your income or your bonuses into Super then you need to document this before you derive the income. This is a common fault with most Employment Contracts. If you use our Employment Contracts http://www.lawcentral.com.au/CreateDo... then you will comply. If you are using someone else's Employment Contract then ask them if their Employment Contract complies.
Secondly, on top of that you can also put in another $150,000 per financial year of "non-concessional contributions". (This is the new term for "after tax-contributions".) This is where the money has already had the tax paid on it. It could, for example, be a nest egg sitting in your bank account or some of the proceeds from the sale of your family home -- assuming your family home is capital gains tax free.
Now, as you were under 65 you could contribute $450k into your Super. You are bringing forward the contribution. Therefore, this stops further "non-concessional contributions" for the next 2 financial years.
Our Self Managed Superannuation Fund Deed http://www.lawcentral.com.au/CreateDo... allows you to immediately start a pension (an account-based pension, to be exact) in which you are only forced to pay 4% of the income to yourself each year. There is now no tax on the income that pensions generate. But while in accumulation mode (before you convert to a pension) your fund is taxed on income. Your deed http://www.lawcentral.com.au/CreateDo... must allow for 2 components: taxable and tax-free component.
Your final question is a tough one. The government has seen fit to tax your adult children at 16.5% on your Super when you die. In fact, apart from your spouse, children under 18 and people you maintain -- all your other family members can get stung with this death duty. There are a number of strategies to reduce this penalty to your "non-dependants" in our deeds. Your adviser and accountant will give you advice on this. You can also consider seeing Brett Davies Lawyers www.taxlawyers.com.au to set up one of our Superannuation Testamentary Trust in your Will.
QUESTION: In a few years I will be turning 66 years old.
1. Does your Self Managed Superannuation Deed http://www.lawcentral.com.au/CreateDo... allow me contribute to my Super?
2. Can I contribute the full $450k and then start a pension with the smallest minimum withdrawal rate?
3. My wife has died; can the left over Superannuation when I die go to my adult child tax free?
ANSWER: While the age of 65 is important, under our Self Managed Superannuation Deed http://www.lawcentral.com.au/CreateDo... you can contribute to Super until you turn 75 years of age. This is provided after 65 you satisfy the work test. It is an easy test. All you need to do is work for a total of 40 hours in "gainful" employment within any 30-days of a financial year.
Two doors then open up.
Firstly, you can instruct your boss (or yourself if you are self-employed) to stick in up to $100k into your Super. This is a "concessional tax contribution". This means that you put untaxed earnings directly into your Super and don't personally pay any tax on the income. However, your SMSF will peel off 15% of that contribution and give it to the tax man. Still 15% is better than the highest marginal tax rate of 46.5%.
Your boss also gets a full tax deduction for paying your Super.
If you are going to shovel in more than 9% of your income or your bonuses into Super then you need to document this before you derive the income. This is a common fault with most Employment Contracts. If you use our Employment Contracts http://www.lawcentral.com.au/CreateDo... then you will comply. If you are using someone else's Employment Contract then ask them if their Employment Contract complies.
Secondly, on top of that you can also put in another $150,000 per financial year of "non-concessional contributions". (This is the new term for "after tax-contributions".) This is where the money has already had the tax paid on it. It could, for example, be a nest egg sitting in your bank account or some of the proceeds from the sale of your family home -- assuming your family home is capital gains tax free.
Now, as you were under 65 you could contribute $450k into your Super. You are bringing forward the contribution. Therefore, this stops further "non-concessional contributions" for the next 2 financial years.
Our Self Managed Superannuation Fund Deed http://www.lawcentral.com.au/CreateDo... allows you to immediately start a pension (an account-based pension, to be exact) in which you are only forced to pay 4% of the income to yourself each year. There is now no tax on the income that pensions generate. But while in accumulation mode (before you convert to a pension) your fund is taxed on income. Your deed http://www.lawcentral.com.au/CreateDo... must allow for 2 components: taxable and tax-free component.
Your final question is a tough one. The government has seen fit to tax your adult children at 16.5% on your Super when you die. In fact, apart from your spouse, children under 18 and people you maintain -- all your other family members can get stung with this death duty. There are a number of strategies to reduce this penalty to your "non-dependants" in our deeds. Your adviser and accountant will give you advice on this. You can also consider seeing Brett Davies Lawyers www.taxlawyers.com.au to set up one of our Superannuation Testamentary Trust in your Will.
Entreprenuership, New Business, Start Up & Business Planning
Business Plan - If you fail to plan then you are planning to fail
The reality of running your own business and offers some advice about writing a business plan, financing a new business, marketing and finding customers, record keeping and taxation.
Writing a business plan, including how to structure the plan, what information to include and other considerations
Drawing up a budget, bank finance and deciding how much financing you will need.
Marketing your new business, finding customers, pricing your product and / or service, and setting yourself apart fom the competition, "...better than your competition and at a profit..."
Taxation, how it works and the importance of keeping records
The reality of running your own business and offers some advice about writing a business plan, financing a new business, marketing and finding customers, record keeping and taxation.
Writing a business plan, including how to structure the plan, what information to include and other considerations
Drawing up a budget, bank finance and deciding how much financing you will need.
Marketing your new business, finding customers, pricing your product and / or service, and setting yourself apart fom the competition, "...better than your competition and at a profit..."
Taxation, how it works and the importance of keeping records
Kevin Rudd's Government spending $42 billion
"...to invest in jobs and economic future....to see Australia through economic crisis..."
USA President Obama Signs $787 Billion Economic Stimulus Bill Into Law
President Barack Obama signed the $787 billion stimulus bill into law Tuesday in Denver. The legislation is the most sweeping economic package in decades. (Feb. 17)
"....most sweeping recovery package....."
"....most sweeping recovery package....."
Is Australian Government guaranteeing all banks?
The Australian government is taking steps to help stabilize the country's economy. Over the weekend Prime Minister Kevin Rudd announced plans for the government to guarantee bank deposits for the next three years.
STORY:
In a bid to combat the global financial turmoil, Australian Prime Minister Kevin Rudd announced that deposits are safe.
[Kevin Rudd, Australian Prime Minister]:
"The Australian government will guarantee all deposits, whatever their size, in all Australian banking institutions for three years. Banks, building societies, credit unions. As Prime Minister of Australia again I am not prepared to stand idly by in dealing with the concerns of Australians as they watch global financial developments unfold."
The Australian government has allocated a 2.6 billion U.S dollar fund to help maintain liquidity in the markets.
Rudd stressed that banks are well regulated, but action is needed.
[Kevin Rudd, Australian Prime Minister]:
"This global financial crisis has entered a new and dangerous phase with real consequences for growth, for jobs and therefore for the future and as a consequence the government of course is examining measures for the future about how best to deploy a surplus that we had set aside for the future."
Ireland and Germany have also said they will guarantee the funds of depositors while in the UK it's reported that Britain's ailing banks are to ask the government for a 35 billion pound cash injection.
The Sunday Times newspaper says HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays, are behind the move.
The announcements come as the world's leading finance ministers meet to discuss the credit crisis.
The leaders have agreed to work together to improve the economic climate by improving regulation and the overall function of the world markets.
STORY:
In a bid to combat the global financial turmoil, Australian Prime Minister Kevin Rudd announced that deposits are safe.
[Kevin Rudd, Australian Prime Minister]:
"The Australian government will guarantee all deposits, whatever their size, in all Australian banking institutions for three years. Banks, building societies, credit unions. As Prime Minister of Australia again I am not prepared to stand idly by in dealing with the concerns of Australians as they watch global financial developments unfold."
The Australian government has allocated a 2.6 billion U.S dollar fund to help maintain liquidity in the markets.
Rudd stressed that banks are well regulated, but action is needed.
[Kevin Rudd, Australian Prime Minister]:
"This global financial crisis has entered a new and dangerous phase with real consequences for growth, for jobs and therefore for the future and as a consequence the government of course is examining measures for the future about how best to deploy a surplus that we had set aside for the future."
Ireland and Germany have also said they will guarantee the funds of depositors while in the UK it's reported that Britain's ailing banks are to ask the government for a 35 billion pound cash injection.
The Sunday Times newspaper says HBOS, Royal Bank of Scotland, Lloyds TSB and Barclays, are behind the move.
The announcements come as the world's leading finance ministers meet to discuss the credit crisis.
The leaders have agreed to work together to improve the economic climate by improving regulation and the overall function of the world markets.
2009 Money with George Soros
George Soros(born August 12, 1930, in Budapest, Hungary, as György Schwartz) is a Hungarian-born Jewish American financial speculator, stock investor, philanthropist, and political activist.
Soros is estimated currently[2009] to be worth around $9 billion in net worth; he is ranked by Forbes as the 101st-richest person in the world.
Soros is chairman of Soros Fund Management and the Open Society Institute and is also a former member of the Board of Directors of the Council on Foreign Relations. He is also one of three initial funders of Center for American Progress, and is represented on the board. His funding and organization of Georgia's Rose Revolution was considered by Russian and Western observers to have been crucial to its success, although Soros said his role has been greatly exaggerated. In the United States, he is known for having donated large sums of money in a failed effort to defeat President George W. Bush's bid for re-election in 2004.
Former Federal Reserve Chairman Paul Volcker wrote in 2003 in the foreword of Soros' book The Alchemy of Finance:
George Soros has made his mark as an enormously successful speculator, wise enough to largely withdraw when still way ahead of the game. The bulk of his enormous winnings is now devoted to encouraging transitional and emerging nations to become 'open societies,' open not only in the sense of freedom of commerce but—more important—tolerant of new ideas and different modes of thinking and behavior.
Move to the United States
In 1956 he moved to New York City, where he worked as an arbitrage trader with F. M. Mayer from 1956 to 1959 and as an analyst with Wertheim and Company from 1959 to 1963. Throughout this time, Soros developed a philosophy of "reflexivity" based on the ideas of Karl Popper. Reflexivity, as used by Soros, is the belief that the action of beholding the valuation of any market by its participants, affects said valuation of the market in a procyclical 'virtuous or vicious' circle.
Soros realized, however, that he would not make any money from the concept of reflexivity until he went into investing on his own. He began to investigate how to deal in investments. From 1963 to 1973 he worked at Arnhold and S. Bleichroeder, where he attained the position of vice-president. Soros finally concluded that he was a better investor than he was a philosopher or an executive. In 1967 he persuaded the company to set up an offshore investment fund, First Eagle, for him to run; in 1969 the company founded a second fund for Soros, the Double Eagle hedge fund.
When investment regulations restricted his ability to run the funds as he wished, he quit his position in 1973 and established a private investment company that eventually evolved into the Quantum Fund. He has stated that his intent was to earn enough money on Wall Street to support himself as an author and philosopher - he calculated that $500,000 after five years would be possible and adequate.
He is also a former member of the Carlyle Group.
Business
Soros is the founder of Soros Fund Management. In 1970 he co-founded the Quantum Fund with Jim Rogers, which created the bulk of the Soros fortune. Rogers retired from the fund in 1980. Other partners have included Victor Niederhoffer and Stanley Druckenmiller.
In late 2006, Soros bought about 2 million shares of Halliburton.
In 2007, the Quantum Fund returned almost 32%, netting Soros $2.9 billion
George Soros' theory of super-bubbles at the World Economic Forum 2009
George Soros on credit crunch and the cycle of boom & bust, the role of market fundamentalism, credit rating agencies, deregulation & globalization. Source: Bloomberg
Soros is estimated currently[2009] to be worth around $9 billion in net worth; he is ranked by Forbes as the 101st-richest person in the world.
Soros is chairman of Soros Fund Management and the Open Society Institute and is also a former member of the Board of Directors of the Council on Foreign Relations. He is also one of three initial funders of Center for American Progress, and is represented on the board. His funding and organization of Georgia's Rose Revolution was considered by Russian and Western observers to have been crucial to its success, although Soros said his role has been greatly exaggerated. In the United States, he is known for having donated large sums of money in a failed effort to defeat President George W. Bush's bid for re-election in 2004.
Former Federal Reserve Chairman Paul Volcker wrote in 2003 in the foreword of Soros' book The Alchemy of Finance:
George Soros has made his mark as an enormously successful speculator, wise enough to largely withdraw when still way ahead of the game. The bulk of his enormous winnings is now devoted to encouraging transitional and emerging nations to become 'open societies,' open not only in the sense of freedom of commerce but—more important—tolerant of new ideas and different modes of thinking and behavior.
Move to the United States
In 1956 he moved to New York City, where he worked as an arbitrage trader with F. M. Mayer from 1956 to 1959 and as an analyst with Wertheim and Company from 1959 to 1963. Throughout this time, Soros developed a philosophy of "reflexivity" based on the ideas of Karl Popper. Reflexivity, as used by Soros, is the belief that the action of beholding the valuation of any market by its participants, affects said valuation of the market in a procyclical 'virtuous or vicious' circle.
Soros realized, however, that he would not make any money from the concept of reflexivity until he went into investing on his own. He began to investigate how to deal in investments. From 1963 to 1973 he worked at Arnhold and S. Bleichroeder, where he attained the position of vice-president. Soros finally concluded that he was a better investor than he was a philosopher or an executive. In 1967 he persuaded the company to set up an offshore investment fund, First Eagle, for him to run; in 1969 the company founded a second fund for Soros, the Double Eagle hedge fund.
When investment regulations restricted his ability to run the funds as he wished, he quit his position in 1973 and established a private investment company that eventually evolved into the Quantum Fund. He has stated that his intent was to earn enough money on Wall Street to support himself as an author and philosopher - he calculated that $500,000 after five years would be possible and adequate.
He is also a former member of the Carlyle Group.
Business
Soros is the founder of Soros Fund Management. In 1970 he co-founded the Quantum Fund with Jim Rogers, which created the bulk of the Soros fortune. Rogers retired from the fund in 1980. Other partners have included Victor Niederhoffer and Stanley Druckenmiller.
In late 2006, Soros bought about 2 million shares of Halliburton.
In 2007, the Quantum Fund returned almost 32%, netting Soros $2.9 billion
George Soros' theory of super-bubbles at the World Economic Forum 2009
George Soros on credit crunch and the cycle of boom & bust, the role of market fundamentalism, credit rating agencies, deregulation & globalization. Source: Bloomberg
2009 Money with Jim Rogers
James Beeland Rogers, Jr. (born October 19, 1942) is an American investor and financial commentator. He is co-founder, along with George Soros, of the Quantum Fund, and is a college professor, author, world traveler, economic commentator, and creator of the Rogers International Commodities Index (RICI).
Rogers was born in Wetumpka, Alabama. Rogers grew up in Demopolis, getting started in business at the age of five, picking up bottles at baseball games. He got his first job on Wall Street, at Dominick & Dominick, after graduating with a bachelor's degree from Yale University in 1964. Rogers then acquired a second BA degree from Balliol College, Oxford University in 1966. After Oxford, Rogers returned to the U.S. and enlisted in the army for a few years.
In 1970, Rogers joined Arnhold & S. Bleichroeder, where he met George Soros. That same year, Rogers and Soros founded the Quantum Fund. During the following 10 years the portfolio gained 4200% while the S&P advanced about 47%. It was one of the first truly international funds.
In 1980, Rogers decided to "retire", and traveled on motorcycle through China. Since then, he has been a guest professor of finance at the Columbia University Graduate School of Business.
In 1989 and 1990, Rogers was the moderator of WCBS' The Dreyfus Roundtable and FNN's The Profit Motive with Jim Rogers. From 1990 to 1992, he traveled through China again, as well as around the world, on motorcycle, over 100,000 miles (160,000 km) across six continents, which was picked up in the Guinness Book of World Records. He tells of his adventures and worldwide investments in Investment Biker.
In 1998, Rogers founded the Rogers International Commodity Index. In 2007, the index and its 3 sub-indices were linked to exchange-traded notes under the banner ELEMENTS. The notes track the total return of the indices as an accessible way to invest in the index.
Between January 1, 1999 and 5 January, 2002, Rogers did another Guinness World Record journey through 116 countries, covering 245,000 kilometers with his wife, Paige Parker, in a custom-made Mercedes. The trip began in Iceland, which was about to celebrate the 1000th anniversary of Leif Eriksson's first trip to America. On January 5, 2002, they were back in New York City and their home on Riverside Drive. His route around the world can be viewed on his website, jimrogers.com. He wrote Adventure Capitalist following this around-the-world adventure. It is currently his best selling book.
On his return in 2002, Rogers became a regular guest on Fox News' Cavuto on Business which airs every Saturday. He has a daughter, Happy, born in 2003. In 2005, Rogers wrote Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. In this book, Rogers quotes a Financial Analysts Journal academic paper co-authored by Yale School of Management professor, Geert Rouwenhorst, entitled Facts and Fantasies about Commodity Futures. Rogers contends this paper shows that commodities investment is one of the best investments over time, which is a concept somewhat at odds with conventional investment thinking.
In December 2007, Rogers sold his mansion in New York City for about 16 million USD and moved to Singapore. This is due mainly in his belief that this is a ground-breaking time for investment potential in Asian markets. Rogers' first daughter is now being tutored in Mandarin to prepare her for the future, he says. "Moving to Asia now is like moving to New York City in 1907," he said. Also, he is quoted to say: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." In a CNBC interview with Maria Bartiromo broadcast on May 5, 2008, Rogers said that people in Asia are extremely motivated and driven, and he wants to be in that type of environment, so his daughters are motivated and driven. He said during that interview that, this is how America and Europe used to be. He chose not to move to Hong Kong or Shanghai due to the high levels of pollution causing potential health problems for his family. His second daughter was born in 2008.
What is next for UK?
What about USA?
Super Inflation Coming!
Shall we let banks fail?
Future of Russia, Emerging markets
Jim Rogers on Future Banking - Shall you trust Banks???
"It's not the first time in the world that investment banks and commercial banks have gone bankrupt, this has been going on for hundreds of years," Jim Rogers, CEO of Rogers Holdings, told CNBC.
Rogers was born in Wetumpka, Alabama. Rogers grew up in Demopolis, getting started in business at the age of five, picking up bottles at baseball games. He got his first job on Wall Street, at Dominick & Dominick, after graduating with a bachelor's degree from Yale University in 1964. Rogers then acquired a second BA degree from Balliol College, Oxford University in 1966. After Oxford, Rogers returned to the U.S. and enlisted in the army for a few years.
In 1970, Rogers joined Arnhold & S. Bleichroeder, where he met George Soros. That same year, Rogers and Soros founded the Quantum Fund. During the following 10 years the portfolio gained 4200% while the S&P advanced about 47%. It was one of the first truly international funds.
In 1980, Rogers decided to "retire", and traveled on motorcycle through China. Since then, he has been a guest professor of finance at the Columbia University Graduate School of Business.
In 1989 and 1990, Rogers was the moderator of WCBS' The Dreyfus Roundtable and FNN's The Profit Motive with Jim Rogers. From 1990 to 1992, he traveled through China again, as well as around the world, on motorcycle, over 100,000 miles (160,000 km) across six continents, which was picked up in the Guinness Book of World Records. He tells of his adventures and worldwide investments in Investment Biker.
In 1998, Rogers founded the Rogers International Commodity Index. In 2007, the index and its 3 sub-indices were linked to exchange-traded notes under the banner ELEMENTS. The notes track the total return of the indices as an accessible way to invest in the index.
Between January 1, 1999 and 5 January, 2002, Rogers did another Guinness World Record journey through 116 countries, covering 245,000 kilometers with his wife, Paige Parker, in a custom-made Mercedes. The trip began in Iceland, which was about to celebrate the 1000th anniversary of Leif Eriksson's first trip to America. On January 5, 2002, they were back in New York City and their home on Riverside Drive. His route around the world can be viewed on his website, jimrogers.com. He wrote Adventure Capitalist following this around-the-world adventure. It is currently his best selling book.
On his return in 2002, Rogers became a regular guest on Fox News' Cavuto on Business which airs every Saturday. He has a daughter, Happy, born in 2003. In 2005, Rogers wrote Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market. In this book, Rogers quotes a Financial Analysts Journal academic paper co-authored by Yale School of Management professor, Geert Rouwenhorst, entitled Facts and Fantasies about Commodity Futures. Rogers contends this paper shows that commodities investment is one of the best investments over time, which is a concept somewhat at odds with conventional investment thinking.
In December 2007, Rogers sold his mansion in New York City for about 16 million USD and moved to Singapore. This is due mainly in his belief that this is a ground-breaking time for investment potential in Asian markets. Rogers' first daughter is now being tutored in Mandarin to prepare her for the future, he says. "Moving to Asia now is like moving to New York City in 1907," he said. Also, he is quoted to say: "If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you are smart in 2007 you move to Asia." In a CNBC interview with Maria Bartiromo broadcast on May 5, 2008, Rogers said that people in Asia are extremely motivated and driven, and he wants to be in that type of environment, so his daughters are motivated and driven. He said during that interview that, this is how America and Europe used to be. He chose not to move to Hong Kong or Shanghai due to the high levels of pollution causing potential health problems for his family. His second daughter was born in 2008.
What is next for UK?
What about USA?
Super Inflation Coming!
Shall we let banks fail?
Future of Russia, Emerging markets
Jim Rogers on Future Banking - Shall you trust Banks???
"It's not the first time in the world that investment banks and commercial banks have gone bankrupt, this has been going on for hundreds of years," Jim Rogers, CEO of Rogers Holdings, told CNBC.
Marc Faber's 2009 Financial Markets Outlook - Worst Economic Contraction
Marc Faber's 2009 Financial Markets Outlook
Faber says global economy going into severe recession; Faber says emerging markets are being hit the hardest; Analysis by Marc Faber, LTD Founder
In his report he proposes several strategies for current markets.
Faber says global economy going into severe recession; Faber says emerging markets are being hit the hardest; Analysis by Marc Faber, LTD Founder
In his report he proposes several strategies for current markets.
Calculation of Return on Investment
Courtesy of George Mason University
This is the lecture on calculation of return on investment
This is the lecture on calculation of return on investment
Investment Management made Simple - Yale MBA
Financial Markets (ECON 252)- study at home
David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
David Swensen, Yale's Chief Investment Officer and manager of the University's endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Tuesday, February 17, 2009
Anthony Robbins
Wealth Mastery
Make Money and Create an Extraordinary Life
Business Success
The Secret to Absolute Certainty
The Power of Goals
Musts v Shoulds
Motivation in a Slump
Power of Decisions
"Reclaiming Your True Identity" Self Help
Clarity & Purpose
The Power Of Belief
Make Money and Create an Extraordinary Life
Business Success
The Secret to Absolute Certainty
The Power of Goals
Musts v Shoulds
Motivation in a Slump
Power of Decisions
"Reclaiming Your True Identity" Self Help
Clarity & Purpose
The Power Of Belief
Anthony Robbins: Why we do what we do, and how we can do it better
Tony Robbins discusses the "invisible forces" that motivate everyone's actions -- and high-fives Al Gore in the front row.
Financial Strategies with Robert Kiyosaki
Robert Kiyosaki in broad strokes about strategies to attain financial freedom
Make a Financial Plan - Top 10 TIPS
Discover how to make a Financial Plan and take control over your personal finances with these top 10 tips:
Dividend Policy & Capital Structure
Choice of payouts, types of payouts, controvecy, conditions where dividends increase/decrase firm value
Risk and Return
Risk and Return History, market risk, Measuring and reducing risk, protfolio theory, CAPM
Lease Financing
Defines LF, compares to other forms of finance, compare Finance and Operating lease, terms and structure of contract, valuations, and adjusting to NPV
Capital Structure
Covers criteria, financial leverage, selecting a capital structure, benefits and cost of debt, financial stress, optimal structure:
What is Investment banking?
Dr Kathy Walsh from the School of Banking and Finance at the Australian School of Business has produced a video that introduces undergraduate students to the world of investment banking:
Financial markets - Real Estate as the biggest asset class - Yale MBA
Financial Markets (ECON 252) - study at home
Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People's demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People's demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets - Behavioral Finance - Yale MBA
Financial Markets (ECON 252)- study at home
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky's Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky's Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets - Foibles, Fraud, Manipulation, and Regulation - Yale MBA
Financial Markets (ECON 252)- study at home
Regulation of financial and securities markets is intended to protect investors while still enabling them to make personal investment decisions. Psychological phenomena, such as magical thinking, overconfidence, and representativeness heuristic can cause deviations from rational behavior and distort financial decision-making. However, regulation and regulatory bodies, such as the SEC, FDIC, and SIPC, most of which were created just after the Great Depression, are intended to help prevent the manipulation of investors' psychological foibles and maintain trust in the markets so that a broad spectrum of investors will continue to participate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Regulation of financial and securities markets is intended to protect investors while still enabling them to make personal investment decisions. Psychological phenomena, such as magical thinking, overconfidence, and representativeness heuristic can cause deviations from rational behavior and distort financial decision-making. However, regulation and regulatory bodies, such as the SEC, FDIC, and SIPC, most of which were created just after the Great Depression, are intended to help prevent the manipulation of investors' psychological foibles and maintain trust in the markets so that a broad spectrum of investors will continue to participate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets - Banking - Yale MBA
Financial Markets (ECON 252)- study at home
Banks, which were first created in primitive form by goldsmiths hundreds of years ago, have evolved into central economic institutions that manage the allocation of resources, channel information about productive activities, and offer the public convenient investment vehicles. Although there are several types of banking institutions, including credit unions and Saving and Loan Associations, commercial banks are the largest and most important in the banking system. Banks are designed to address three significant problems in capital markets: adverse selection, moral hazard, and liquidity. Banks make money by borrowing long and lending short and use fractional reserves to lend more funds than are deposited. History has seen numerous problems in banks, including bank runs and insolvency. Government support and regulation, such as those implemented via the Basel Accord, as well as rating agencies help to ensure that investors trust the banks with which they have relations.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Banks, which were first created in primitive form by goldsmiths hundreds of years ago, have evolved into central economic institutions that manage the allocation of resources, channel information about productive activities, and offer the public convenient investment vehicles. Although there are several types of banking institutions, including credit unions and Saving and Loan Associations, commercial banks are the largest and most important in the banking system. Banks are designed to address three significant problems in capital markets: adverse selection, moral hazard, and liquidity. Banks make money by borrowing long and lending short and use fractional reserves to lend more funds than are deposited. History has seen numerous problems in banks, including bank runs and insolvency. Government support and regulation, such as those implemented via the Basel Accord, as well as rating agencies help to ensure that investors trust the banks with which they have relations.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets - Risk Management: Pooling and the Hedging of Risks - Yale MBA
Financial Markets (ECON 252)- study at home
Statistics and mathematics underlie the theories of finance. Probability Theory and various distribution types are important to understanding finance. Risk management, for instance, depends on tools such as variance, standard deviation, correlation, and regression analysis. Financial analysis methods such as present values and valuing streams of payments are fundamental to understanding the time value of money and have been in practice for centuries.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Statistics and mathematics underlie the theories of finance. Probability Theory and various distribution types are important to understanding finance. Risk management, for instance, depends on tools such as variance, standard deviation, correlation, and regression analysis. Financial analysis methods such as present values and valuing streams of payments are fundamental to understanding the time value of money and have been in practice for centuries.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets - Investment Banking and Secondary Markets - Yale MBA
Financial Markets (ECON 252)- study at home
First, Professor Shiller discusses today's changing financial system and recent market stabilization reform introduced by U.S. Treasury Secretary Henry Paulson. The financial system is inherently unstable and would benefit from more surveillance, particularly for consumer protection issues, given the recent subprime mortgage crisis. Although this particular reform might not be successful, more regulators and policymakers are talking about changing the stabilization system and will likely alter the role of the Fed in the future.
Second, Professor Shiller introduces the mechanics and role of investment banking. Investment banks underwrite securities and arrange for the issue of stocks and bonds by corporations. Corporations work with investment banks to navigate the Securities and Exchange Commission requirements for issuing securities. The banks then take on a "bought deal" or "best efforts deal" and help the corporation to find a market for the securities. Investment banking depends on the reputation of its bankers and, as we have seen recently, can be destroyed by rumors about the bank's insolvency.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
First, Professor Shiller discusses today's changing financial system and recent market stabilization reform introduced by U.S. Treasury Secretary Henry Paulson. The financial system is inherently unstable and would benefit from more surveillance, particularly for consumer protection issues, given the recent subprime mortgage crisis. Although this particular reform might not be successful, more regulators and policymakers are talking about changing the stabilization system and will likely alter the role of the Fed in the future.
Second, Professor Shiller introduces the mechanics and role of investment banking. Investment banks underwrite securities and arrange for the issue of stocks and bonds by corporations. Corporations work with investment banks to navigate the Securities and Exchange Commission requirements for issuing securities. The banks then take on a "bought deal" or "best efforts deal" and help the corporation to find a market for the securities. Investment banking depends on the reputation of its bankers and, as we have seen recently, can be destroyed by rumors about the bank's insolvency.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets -Debt and Term Structure - Yale MBA
Financial Markets (ECON 252)- study at home
The markets for debt, both public and private far exceed the entire stock market in value and importance. The U.S. Treasury issues debt of various maturities through auctions, which are open only to authorized buyers. Corporations issue debt with investment banks as intermediaries. The interest rates are not set by the Treasury, the corporations or the investment bankers, but are determined by the market, reflecting economic forces about which there are a number of theories. The real and nominal rates and the coupons of a bond determine its price in the market. The term structure, which is the plot of yield-to-maturity against time-to-maturity indicates the value of time for points in the future. Forward rates are the future spot rates that can be calculated using today's bond prices. Finally, indexed bonds, which are indexed to inflation, offer the safest asset of all and their price reveals a fundamental economic indicator, the real interest rate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
The markets for debt, both public and private far exceed the entire stock market in value and importance. The U.S. Treasury issues debt of various maturities through auctions, which are open only to authorized buyers. Corporations issue debt with investment banks as intermediaries. The interest rates are not set by the Treasury, the corporations or the investment bankers, but are determined by the market, reflecting economic forces about which there are a number of theories. The real and nominal rates and the coupons of a bond determine its price in the market. The term structure, which is the plot of yield-to-maturity against time-to-maturity indicates the value of time for points in the future. Forward rates are the future spot rates that can be calculated using today's bond prices. Finally, indexed bonds, which are indexed to inflation, offer the safest asset of all and their price reveals a fundamental economic indicator, the real interest rate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets - Portfolio Diversification and CAPM Model - Yale MBA
Financial Markets (ECON 252)- study at home
Portfolio diversification is the most fundamental concept of risk management. The allocation of financial resources in stocks, bonds, riskless, assets, oil and other assets determine the expected return and risk of a portfolio. Taking account of covariances and expected returns, investors can create a diversified portfolio that maximizes expected return for a given level of risk. An important mission of financial institutions is to provide portfolio-diversification services.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Portfolio diversification is the most fundamental concept of risk management. The allocation of financial resources in stocks, bonds, riskless, assets, oil and other assets determine the expected return and risk of a portfolio. Taking account of covariances and expected returns, investors can create a diversified portfolio that maximizes expected return for a given level of risk. An important mission of financial institutions is to provide portfolio-diversification services.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets - Options - Yale MBA
Financial Markets (ECON 252) - study at home
Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options exchanges and futures exchanges both are involved in creating a liquid and transparent market for options. Options are not just for stocks; they are also important for other asset classes, such as real estate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options exchanges and futures exchanges both are involved in creating a liquid and transparent market for options. Options are not just for stocks; they are also important for other asset classes, such as real estate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Game Theory & Nash Equilibrium - Yale MBA
Game Theory (ECON 159)
We apply the notion of Nash Equilibrium, first, to some more coordination games; in particular, the Battle of the Sexes. Then we analyze the classic Cournot model of imperfect competition between firms. We consider the difficulties in colluding in such settings, and we discuss the welfare consequences of the Cournot equilibrium as compared to monopoly and perfect competition.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
We apply the notion of Nash Equilibrium, first, to some more coordination games; in particular, the Battle of the Sexes. Then we analyze the classic Cournot model of imperfect competition between firms. We consider the difficulties in colluding in such settings, and we discuss the welfare consequences of the Cournot equilibrium as compared to monopoly and perfect competition.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets - The efficient markets hypothesis & Volatility - Yale MBA
Financial Markets (ECON 252) -study at home
Several theories in finance relate to stock price analysis and prediction. The efficient markets hypothesis states that stock prices for publicly-traded companies reflect all available information. Prices adjust to new information instantaneously, so it is impossible to "beat the market." Furthermore, the random walk theory asserts that changes in stock prices arise only from unanticipated new information, and so it is impossible to predict the direction of stock prices. Using statistical tools, we can attempt to test the hypotheses and to predict future stock prices. These tests show that efficient markets theory is a half-truth: it is difficult but not impossible for some people to beat the market.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Several theories in finance relate to stock price analysis and prediction. The efficient markets hypothesis states that stock prices for publicly-traded companies reflect all available information. Prices adjust to new information instantaneously, so it is impossible to "beat the market." Furthermore, the random walk theory asserts that changes in stock prices arise only from unanticipated new information, and so it is impossible to predict the direction of stock prices. Using statistical tools, we can attempt to test the hypotheses and to predict future stock prices. These tests show that efficient markets theory is a half-truth: it is difficult but not impossible for some people to beat the market.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets-Stock Index, Oil and Other Futures Markets- Yale MBA
Financial Markets (ECON 252)- study at home
Futures markets have expanded far beyond their initial application to farmer's planting and harvest cycles. These markets now allow investors and traders to set prices for a broad spectrum of assets and for a whole term structure stretching into the distant future. Some of these markets are often priced according to simple fair-value formulae, others are not. Futures markets can be in backwardation, where the future price is lower than the present, spot price. They can also be in contango, where the price rises with maturity and is higher in the future than it is today. The S&P/Case-Shiller Home Price Index is a recent invention that has transferred the mechanics of futures markets to the prices of single-family homes in ten real estate markets, in an effort to create a national market for residential real estate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Futures markets have expanded far beyond their initial application to farmer's planting and harvest cycles. These markets now allow investors and traders to set prices for a broad spectrum of assets and for a whole term structure stretching into the distant future. Some of these markets are often priced according to simple fair-value formulae, others are not. Futures markets can be in backwardation, where the future price is lower than the present, spot price. They can also be in contango, where the price rises with maturity and is higher in the future than it is today. The S&P/Case-Shiller Home Price Index is a recent invention that has transferred the mechanics of futures markets to the prices of single-family homes in ten real estate markets, in an effort to create a national market for residential real estate.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets -Insurance & Risk management - Yale MBA
Financial Markets (ECON 252)-study at home
Insurance provides significant risk management to a broad public, and is an essential tool for promoting human welfare. By pooling large numbers of independent or low-correlated risks, insurance providers can minimize overall risk. The risk management is tailored to individual circumstances and reflects centuries of insurance industry experience with real risks and with moral hazard and selection bias issues. Probability theory and statistical tools help to explain how insurance companies use risk pooling to minimize overall risk. Innovation and government regulation have played important roles in the formation and oversight of insurance institutions.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Insurance provides significant risk management to a broad public, and is an essential tool for promoting human welfare. By pooling large numbers of independent or low-correlated risks, insurance providers can minimize overall risk. The risk management is tailored to individual circumstances and reflects centuries of insurance industry experience with real risks and with moral hazard and selection bias issues. Probability theory and statistical tools help to explain how insurance companies use risk pooling to minimize overall risk. Innovation and government regulation have played important roles in the formation and oversight of insurance institutions.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets: Stocks, Stockmarket, Shares - Yale MBA
Financial Markets (ECON 252)- study at home
The stock market is the information center for the corporate sector. It represents individuals' ownership in publicly-held corporations. Although corporations have a variety of stakeholders, the shareholders of a for-profit corporation are central since the company is ultimately responsible to them. Companies offer dividends, stock repurchases and stock dividends to give profits back to shareholders or to signal information. Companies can also take on debt to raise capital, creating leverage. The Modigliani-Miller theory of a company's leverage in its simplest form implies the leverage ratio doesn't matter, but including bankruptcy costs and tax effects give us a positive theory of the ratio.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
The stock market is the information center for the corporate sector. It represents individuals' ownership in publicly-held corporations. Although corporations have a variety of stakeholders, the shareholders of a for-profit corporation are central since the company is ultimately responsible to them. Companies offer dividends, stock repurchases and stock dividends to give profits back to shareholders or to signal information. Companies can also take on debt to raise capital, creating leverage. The Modigliani-Miller theory of a company's leverage in its simplest form implies the leverage ratio doesn't matter, but including bankruptcy costs and tax effects give us a positive theory of the ratio.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets - Work for Real People: The Democratization of Finance - Yale MBA
Financial Markets (ECON 252)- study at home
Professor Shiller, in his final lecture, reviews some of the most important tools for individual risk management. Significant inequality in domestic and international communities has created a need for social insurance programs, such as those created in Germany in the late 1800s. The tax system, bankruptcy laws, and government insurance programs are used to manage risk of personal wealth. However, each of these inventions must take account of psychological factors, such as moral hazard, in order to be effective without eliminating incentives to participate in the workforce, or other negative side effects. With regard to careers, including those in finance, young people should frame decisions with morality and purpose in mind, and with a broad perspective of both.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Professor Shiller, in his final lecture, reviews some of the most important tools for individual risk management. Significant inequality in domestic and international communities has created a need for social insurance programs, such as those created in Germany in the late 1800s. The tax system, bankruptcy laws, and government insurance programs are used to manage risk of personal wealth. However, each of these inventions must take account of psychological factors, such as moral hazard, in order to be effective without eliminating incentives to participate in the workforce, or other negative side effects. With regard to careers, including those in finance, young people should frame decisions with morality and purpose in mind, and with a broad perspective of both.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial markets - Monetary Policy - Yale MBA
Financial Markets (ECON 252)- Learn without going to the class
Central Banks, originally created as bankers' banks, implement monetary policy using their leverage over the supply of money and credit standards. Since the Bank of England was founded in 1694, through the gold standard which lasted until the 1930s, and into modern times, central banks have pursued monetary policy to stabilize the banking system. Central banks monitor currency flows and inflation, acting when crises, such as bank runs, emerged. More recently, central banks have taken an increasingly expansive role in stabilizing economic fluctuations. In the yet to be confirmed current recession, the Federal Reserve has used open market operations and innovative financial arrangements to try to forestall the recession and bail out failing financial institutions.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Central Banks, originally created as bankers' banks, implement monetary policy using their leverage over the supply of money and credit standards. Since the Bank of England was founded in 1694, through the gold standard which lasted until the 1930s, and into modern times, central banks have pursued monetary policy to stabilize the banking system. Central banks monitor currency flows and inflation, acting when crises, such as bank runs, emerged. More recently, central banks have taken an increasingly expansive role in stabilizing economic fluctuations. In the yet to be confirmed current recession, the Federal Reserve has used open market operations and innovative financial arrangements to try to forestall the recession and bail out failing financial institutions.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Financial Markets: Finance & Insurance as powerful forces in the economy - Yale MBA - Learn at home
Financial Markets (ECON 252)- Learn without going to the class
Professor Shiller provides a description of the course, Financial Markets, including administrative details and the topics to be discussed in each lecture. He briefly discusses the importance of studying finance and each key topic. Lecture topics will include: behavioral finance, financial technology, financial instruments, commercial banking, investment banking, financial markets and institutions, real estate, regulation, monetary policy, and democratization of finance.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Professor Shiller provides a description of the course, Financial Markets, including administrative details and the topics to be discussed in each lecture. He briefly discusses the importance of studying finance and each key topic. Lecture topics will include: behavioral finance, financial technology, financial instruments, commercial banking, investment banking, financial markets and institutions, real estate, regulation, monetary policy, and democratization of finance.
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
Fundamentals of Risk Management
What is financial risk management and how does it impact corporate value? See a lecture on the topic and how it impacts corporate decisions in good times and in bad-it explains the need for risk management and how it has arrived at the forefront of corporate management and investment strategy:
Basic Financial Management for Managers
Looking at any new venture as a stream of cashflows, time value, rates of return, depreciation and pay-back period:
Share your professional videos and presentations
Now your Slideshare presentations can move! The Slideshare team have announced that you can now use embed codes in your Slideshare presentations. And while this feature is still in Beta, I expect it to get massive uptake by professionals.
New marketing revolution?
Is another new marketing and advertising revolution already underway? Do David Ogilvy 's words sound presentient? He suggests to create DIRECT RESPONSE TEAMS.
Tuesday, February 10, 2009
Can I invest in Art and make more money than in a stockmarket or property?
ART & GLOBAL WEALTH TRENDS
Today’s high net worth individual wealth is over $30
trillion and is increasing by 7% per annum. Currently, $300
billion is potentially available to be invested in art (ABN AMRO report, 2005).
A 2008 study by Mamarbachi, Raya, Day, Marc and Favato, Giampiero, "Art as an Alternative Investment Asset" found that art in
emerging markets [India] has produced 2000% returns over the
past 8 years and by far outperformed returns of the best
performing Hedge Funds like Credit Suisse Tremont Hedge
Fund, Barclay Global Hedge Source Fund, or Hedge Fund
Research Equal Weighed Strategies (Figure 4, page 20). New
York University's Stern School of Business professors have
studied art sales over 125 years and compiled it into the
Mei Moses Fine Art Index.
For example, a J.M.W. Turner view of Venice sold Christie's
in London on May 29, 1897, for $35,000 and then sold at Christie's NY in April 2005 for $35.8
million—which yields about a 6 percent annual return for 109
years. The 1954-2004 fifty year data shows, over the last 50 years, stocks (as represented
by the S&P 500) returned 10.9 percent annually, while the
art index returned 10.5 percent per annum. The most recent
annual five and ten year returns for art, 16.2% and 10.3%, exceed the
returns of stocks often offering investors a safe heaven during stockmarket crashes like we've seen in 2008 and again this year.
AUSTRALIAN ABORIGINAL ART & RETURN OPTIMISATION
More recently, art funds have been created to allow rich people to invest in a
portfolio of fine art assets (e.g. a London-based
Fine Art Fund created by a former Christie's executive).
Art has always followed the money, and money follows the strongest
markets. Dealers like Larry “Go-Go” Gagosian, Daniella Luxembourg and
Jeffrey Deitch, hedge fund moguls and newly born oligarchs want to participate
in $30 Billion Private Art Sales Around the World buying
multi-million dollar works. In the meanwhile,
Professors Moses & Mei found that art purchased for less than
$100,000 produced significantly higher returns than art
purchased for $100,000-$1m or higher.
Professor Worthington of QUT School of Economics and Finance
studied global art markets and calculated returns in Australian art market based on about 36,000 auction sales. In his study at University of Wollongong he identified
Australian Fine Art as a separate Alternative Investment asset class, that produced 30-year average annual returns of 8.23% for all artists as average, in
line with other world art markets, and works costing
$10,000-$35,000 providing highest returns.
AUSTRALIAN ABORIGINAL ART RATE OF RETURN
Prior to 1990s Australian aboriginal art was viewed
merely as part of tourism only to power charge resale values, like
$1.056 million for Emily Kame Kngwarreye's Earth's Creation and $2.4m for
Clifford Possum Tjapaltjarri’s Warlugulong in recent
years. The Warlugulong painting was bought by
Commonwealth Bank of Australia in 1977 for $1200. In 1996, Melbourne art dealer Hank
Ebes acquired the painting for $36,000 and in 2007
National Gallery of Australia acquired the painting at
the Sotheby's auction for a princely sum of $2.4 million. This returned Ebes more than 6,500%
on his investment (1996-2007).
Never mind, if CBA would have held to their $1,200 investment, it
would have returned them 200,000% (1977-2007). Aboriginal art works are called the
outstanding paintings of the 20th century and form a $700 million industry.
With recent success in Bahrain and Musee du Quai Branly in Paris
aboriginal art of Australia is a rather hot investment commodity.
BEAUTY & PORTFOLIO DIVERSIFICATION
Art as an asset class was found to have less volatility and
much lower correlation with other assets as found, hence a
portfolio of artworks may play a somewhat more important
role in portfolio diversification. While the idea – “don’t
put all your eggs in one basket” is timeless, the funds
management principles date back to the early 1950’s. In
June of 1952, a 25-year-old graduate student published a
provocative article in the Journal of Finance that would
have a profound impact on Modern Portfolio Theory. In his
writings, Markowitz discussed risk management through
diversification. He found that by investing your money
across a number of asset classes, there were opportunities
to get more return from a given level of risk, or lower the
risk of your portfolio without compromising returns.
Bill Sharpe took Markowitz’ work and developed the Capital
Asset Pricing Model (“CAPM”), and introducing Beta as a
measure of market risk. Markowitz and Sharpe shared the
Nobel Prize in Economic Science in 1990 for their work
on Modern Portfolio Theory. Building upon the work of
Markowitz and others, Gary Brinson sought to study the
impact of the asset allocation policy decision. The
Brinson Beebower studies, originally completed in 1986
and revisited in 1991, suggested that 93.6% of a portfolio’s
change in returns over time were attributable to
asset allocation policy.
Learn more at ARTBANK
More recently, art funds have been created to allow rich people to invest in a
portfolio of fine art assets (e.g. a London-based
Fine Art Fund created by a former Christie's executive).
Art has always followed the money, and money follows the strongest
markets. Dealers like Larry “Go-Go” Gagosian, Daniella Luxembourg and
Jeffrey Deitch, hedge fund moguls and newly born oligarchs want to participate
in $30 Billion Private Art Sales Around the World buying
multi-million dollar works. In the meanwhile,
Professors Moses & Mei found that art purchased for less than
$100,000 produced significantly higher returns than art
purchased for $100,000-$1m or higher.
Professor Worthington of QUT School of Economics and Finance
studied global art markets and calculated returns in Australian art market based on about 36,000 auction sales. In his study at University of Wollongong he identified
Australian Fine Art as a separate Alternative Investment asset class, that produced 30-year average annual returns of 8.23% for all artists as average, in
line with other world art markets, and works costing
$10,000-$35,000 providing highest returns.
AUSTRALIAN ABORIGINAL ART RATE OF RETURN
Prior to 1990s Australian aboriginal art was viewed
merely as part of tourism only to power charge resale values, like
$1.056 million for Emily Kame Kngwarreye's Earth's Creation and $2.4m for
Clifford Possum Tjapaltjarri’s Warlugulong in recent
years. The Warlugulong painting was bought by
Commonwealth Bank of Australia in 1977 for $1200. In 1996, Melbourne art dealer Hank
Ebes acquired the painting for $36,000 and in 2007
National Gallery of Australia acquired the painting at
the Sotheby's auction for a princely sum of $2.4 million. This returned Ebes more than 6,500%
on his investment (1996-2007).
Never mind, if CBA would have held to their $1,200 investment, it
would have returned them 200,000% (1977-2007). Aboriginal art works are called the
outstanding paintings of the 20th century and form a $700 million industry.
With recent success in Bahrain and Musee du Quai Branly in Paris
aboriginal art of Australia is a rather hot investment commodity.
BEAUTY & PORTFOLIO DIVERSIFICATION
Art as an asset class was found to have less volatility and
much lower correlation with other assets as found, hence a
portfolio of artworks may play a somewhat more important
role in portfolio diversification. While the idea – “don’t
put all your eggs in one basket” is timeless, the funds
management principles date back to the early 1950’s. In
June of 1952, a 25-year-old graduate student published a
provocative article in the Journal of Finance that would
have a profound impact on Modern Portfolio Theory. In his
writings, Markowitz discussed risk management through
diversification. He found that by investing your money
across a number of asset classes, there were opportunities
to get more return from a given level of risk, or lower the
risk of your portfolio without compromising returns.
Bill Sharpe took Markowitz’ work and developed the Capital
Asset Pricing Model (“CAPM”), and introducing Beta as a
measure of market risk. Markowitz and Sharpe shared the
Nobel Prize in Economic Science in 1990 for their work
on Modern Portfolio Theory. Building upon the work of
Markowitz and others, Gary Brinson sought to study the
impact of the asset allocation policy decision. The
Brinson Beebower studies, originally completed in 1986
and revisited in 1991, suggested that 93.6% of a portfolio’s
change in returns over time were attributable to
asset allocation policy.
Learn more at ARTBANK
Art and Tax benefits
The tax rules under the Australian Cultural Gifts Program seem straightforward - see recent article.
Giving art to a gallery or other public institution has become an increasingly common activity as the number of wealthy Australians with significant art collections has increased in recent decades. Being a benefactor has a high feel-good rating and there is also a handy tax deduction available under the Australian Government’s Cultural Gifts Program. Using the provisions of the Cultural Gifts Program is one of two ways to get a tax break on an art collection (second is to use a Self-managed Superannuation fund).
The work has to be valued by valuers registered with the program. An average is taken of the valuations and that amount is deductible. This can be used to offset taxable income over five years. Gifts of property made under the program are exempt from capital gains tax. If you sell a painting you pay commission to the dealer or the auction house and you pay capital gains tax. You can end up with about 60 cents in the dollar, depending on your level of income. If you give the work away, you can offset the value of the work against taxable income.
The following is the extract from the Australian Master Tax Guide on Art Gifts
Under the Cultural Gifts Program (formerly the Taxation Incentives for the Arts Scheme), certain gifts of works of art and comparable property qualify for deduction on a more liberal basis than other gifts (s 30-15, items 4 and 5). Such gifts are also exempt from CGT (s 118-60(2)). The program applies to gifts of property with a value of $2 or more for inclusion in the collections maintained by the Australiana Fund, a public art gallery, public library or public museum. Gifts by will are excluded, but may qualify under the companion deduction for cultural bequests (15-575). Gifts of money are excluded. Companies, as well as individuals, are entitled to a deduction under the program (Taxation Determination TD 93/28), although the making of a gift does not create or increase a carry-forward loss (16-880) (Taxation Determination TD 92/195).
Within certain limits, the program allows a deduction for a qualifying gift to be based on the GST inclusive market value of the gift rather than its cost. It also dispenses with the requirement for other gifts (15-510) that the gifted property must have been purchased by the taxpayer within 12 months of the gift being made or be valued by the Commissioner at more than $5,000. A taxpayer must, of course, own the gifted property to claim a deduction (eg Case Y22 91 ATC 257, where a deduction for the value of donated excess film footage in which the taxpayer did not own the copyright was denied). A proportionate deduction is allowed where property is owned and gifted by two or more persons (s 30-225). The deduction for qualifying gifts is generally based on the GST inclusive market value of the gift at the time it was made, determined by reference to the average of two or more valuations obtained from approved valuers. Valuations must be in writing and must state the estimated GST inclusive market value of the property at the time the gift was made or, provided the valuation is made within 90 days before or after the time the gift is made, the GST inclusive value of the property at the time of valuation (s 30-200). The general rule is that the average of the GST inclusive market values specified in the valuations will be treated as the value of the property. However, in some cases an adjustment may be necessary for any input tax credit entitlement (s 30-15(3); 30-215(4)). The ATO feels that the valuation method should determine what price a willing, but not anxious, vendor and a willing, but not anxious, purchaser could reasonably be expected to agree on for the transfer of the property (Taxation Ruling TR 96/1). The ATO does not accept the decision in Case X12 90 ATC 162, that the value of opals donated to a museum was the average of two retail valuations supplied by the taxpayer's valuers, as authority for a contrary view. The cost of such valuations is deductible as a tax-related expense (Taxation Determination TD 93/92).
A person making a gift should send the written valuations to the recipient institution which should then forward them, together with any further documentation required, to the Committee on Cultural Gifts Program. If the Committee accepts that the values and other aspects of the gift conform with the relevant requirements, it will endorse the valuations and return them to the taxpayer. The taxpayer need only produce the valuation documents to the ATO when requested to do so (Taxation Ruling TR 96/1). There are important exceptions to the rule that the deduction for eligible art gifts is based on market value.
These exceptions are as follows:
• Recent or prearranged acquisitions. The deduction is calculated as the lesser of the GST inclusive market value (reduced by any input tax credit entitlement) and the amount paid for the item by the taxpayer where: (a) the property is donated within 12 months of its acquisition (otherwise than by inheritance) by the taxpayer; or (b) the property was acquired by the taxpayer for the purpose of donation or was acquired subject to an agreement or understanding that the property would be donated (s 30-215(3), (4)).
• Artists, art dealers, etc. In certain circumstances, the deduction will be based on the cost of acquiring or creating the property and not on the GST inclusive market value. This will be so in a case where, had the property been sold by the taxpayer rather than gifted, any profits or proceeds arising from the sale would have been assessable to the taxpayer and where the value of that property is not so assessable to the taxpayer as a consequence of the gift being made (s 30-205; 30-215(3)). The ``cost'' method will therefore apply where an artist or art dealer donates cultural property (other than property from the dealer's own private collection), which is created in the ordinary course of business, such as a work of art created originally for sale but subsequently donated. Under the “cost” method, the value of the gift is the amount paid for the property by the taxpayer, reduced by any input tax credit entitlement. Where the property is created or produced, the value is so much of the cost of creating or producing the property as would have been allowed as a deduction to the taxpayer if the property had been sold by the taxpayer, reduced by any input tax credit entitlement. In any other case, if the average of the valuations does not fairly represent market value, the deductible amount is the market value of the property on the day the gift was made.
Deduction may be reduced
The deduction may be reduced by a “reasonable” amount where the recipient does not obtain the right to immediate custody and control of the property or full legal and equitable title to the property (s 30-220). This is also the case where the custody, control or use of the property by the recipient is affected by any agreement entered into in connection with the gift. For example, assume that a gift worth $10,000 is made on condition that the taxpayer retains full rights of possession and enjoyment for the next 10 years. The appropriate discounting factor could be 10%. Using this factor, the present value of the $10,000 gift would be $3,885 and that would be the amount of the reduced deduction allowable (Taxation Ruling IT 295).
Deduction may be spread over five years
Deductions for gifts made under the Cultural Gifts Program may be spread over a period of up to five income years at the election of the taxpayer. The election must be in writing and be made before the taxpayer lodges an income tax return for the income year in which the gift is made. The election must specify the percentage, if any, to be deducted in each income year. A copy of the election must be given to the Secretary of the Department administering the National Gallery Act 1975 before lodging an income tax return for the year in which the gift is made. The election may be varied at any time, although the variation will only apply to the percentage of the original deduction that is to be claimed in income years for which an income tax return has not yet been lodged (Sub division 30-DB: s 30-246 to 30-248).
As this seems to be quite a complex area of taxation I would highly recommend that taxation advice be sought.
Download the Australian Cultural Gifts Program guide on tax incentives
More information on the Australian Cultural Gifts Program
More information on the Australian Cultural Gifts Program approved valuers
More information on the Australian Cultural Gifts Program participating Institutions
More information on forms and certificates
Can I buy ART in my Superannuation?
ART AND SELF-MANAGED SUPERANNUATION (SMSF)
If art is managed correctly, it could be of benefit to generations of your family. Art can make an excellent addition to your self-managed super fund, but you need to keep a close eye on the rules. Whether you're investing in art for love or investment purposes, it does not matter as the same capital gains tax (CGT) ramifications take place just like when buying shares, property or ownership in a business.
INHERITANCE AND CONTINUITY
You can spend a lifetime gathering a collection, but at the end of the day what will happen to it, and who will you pass it onto? Strangely, art institutions aren't that keen to be given bequests because of the cost involved in maintaining them (See an article regarding art Philanthropy in our Media section). By bequeathing a valuable painting to family or friends you could be saddling them with a tax liability if they sell it.
If an artwork was bought before capital gains tax was introduced in September 1985, it would generally not be subject to the tax. But if someone inherits an artwork, then capital gains begins from the date they inherited. If the artwork was bought after 1985, the capital gain is based on the difference between the purchase and sale price. Fifty per cent of that gain is then assessable and added to the vendor's income in that financial year. As a result, clients who may have been in a lower tax bracket are pushed up into the higher marginal tax bracket and can loose a large part of the gain in tax.
That's where a self-managed superannuation fund (SMSF) can be very useful.
SMSF is probably the most effective estate planning vehicle that is available to us today which will allow art collections to go on. One of the major benefits of an SMSF is that during the accumulation phase up until you retire the fund pays lower, 15 per cent, income tax and 10 per cent capital gains tax. Once you reach retirement, the fund moves into pension phase and zero tax is payable on both income and capital gains within the fund.
Clients could actually buy works of art as with their SMSF during the accumulation phase, sell it during the retirement phase and have no capital gains tax implications. Then you have cash reserves to diversify into other types of assets to fund your happy retirement.
SMSF: TAKING CARE OF RULES AND REGULATIONS
While any collectable or unique investment can be in an SMSF the asset has to be valued every year the question is: how do you intend to provide for your retirement if these collectables are still in your fund when you retire?
The trustees are required to make sure the assets are being cared for and insured. To accomplish this, the ATO recommends that the collection is placed in storage or leased to an art gallery or commercial premises. If the collection is leased it will be producing an income. But it's rare that all artworks when leased would produce sufficient income to sustain someone in retirement.
And whatever, you do, avoid buying art with SMSF then hang on the wall in your house.
RESTRICTIONS
Provided the Investment Strategy permits the investment in artworks, the following additional factors must then be considered:
• Where will the artworks be displayed – the Sole Purpose Test prohibits trustees from making investment decisions to obtain a benefit prior to retirement:
a. if a member obtains the benefit at no cost, then the sole purpose test may be breached; or
b. if a member or related party obtains a benefit, but pays a commercial lease entered into after 23/12/99, then the Agreement must be documented and the In House Asset rules must be considered (ensure the artwork is less than 5% of the market value of the fund’s assets).
• Detailed expert advice should be sought if the artworks will be held for capital appreciation purposes (as opposed to deriving an income stream).
• Annual costs such as insurance and storage.
• Valuation costs.
Typically the asset allocation within an SMSF might need to change, especially if you are thinking of using 100 per cent of funds towards art using SMSF. In addition, when you come to retire there may be a need to make more changes to the fund to ensure it is able to produce income, unless there is income from other sources.
When buying art as an investment you should seek good advice. Galleries, the primary market, are a source of information but they invariably promote their own selective artists, hence they are quite biased. Auction houses, on the other hand, are like a stock exchange where people are putting their shares back on the market for sale and the market determines how much the market is prepared to pay. They show art sales historical data and the percentage of growth in any particular artist's work. The draw back that you might pay extra 15-20% extra in ‘buyer’s premium’ for the privilege of buying through an auction house.
Sole Purpose Test
If an investment provides some personal benefit, the trustee will need to consider whether that personal benefit is consistent with the ‘sole purpose test’. As a general rule, the sole purpose test provides that the superannuation fund needs to be run exclusively for genuine retirement purposes. There are a limited number of other purposes that are allowed, such as providing against total and permanent disability, but the pleasure of looking at art is not among them. The Administrative Appeals Tribunal has indicated in previous decisions that it will look to whether the trustee has a secondary purpose to make the assets available for their own use and for the use of family and friends in determining if the investment is consistent with the sole purpose test. Where the trustee stores artwork on their wall at home they may be considered to be deriving personal use or enjoyment from the asset. It is not the storing of the artwork on the wall that is the issue; it is the trustee deriving personal use or enjoyment from the asset, such as looking at it. To avoid any doubt, the trustee may need to put it into storage or even place it on loan to an art gallery in return for the gallery providing storage.
Risk Management
Trustees need to be able to demonstrate from a custodian viewpoint that they are taking adequate precautions to protect any artwork held by the fund – it should be kept in a secure location and be stored to minimise damage. The artworks must be adequately insured (by the fund). All these procedures need to be minuted properly.
SMSF: ART LOAN
The dignity of the sole purpose test set out in section 62(1) of SIS has been strained - severely. The Tax Office has set out its thoughts in Draft Self Managed Superannuation Funds Ruling SMSFR 2007/D1 which recognises that while a SMSF may be maintained solely for the purposes set out in section 62(1), a fund may (incidentally) provide members or other entities with benefits other than those specified:
Example A
Use of work of art at no cost: breach of section 62.
A trustee of an SMSF acquires a work of art and does not seek independent advice in relation to that investment. The investment strategy of the SMSF requires the fund to hold a certain percentage of its asset in a portfolio of listed securities. The trustee liquidates all of the listed securities that the SMSF has invested in to fund the acquisition of the work of art. Soon after the work of art is acquired, it is displayed in the home of a member at no cost to that member.
The trustee contravenes the sole purpose test in these circumstances. Where the work of art is provided for the use of the member at no cost, or at less than market value, it indicates that a purpose of the investment is to provide a benefit otherwise than in accordance with subsection 62(1). The liquidation of a class of assets forming part of the SMSF investment strategy reinforces the conclusion that the provision of the benefit outside of those stipulated in subsection 62(1) was purposeful.
Example B
Lease of work of art to member at market value: no breach of section 62
SMSF maintains an investment in a significant art collection as part of its investment strategy, and commonly leases works of art to unrelated third parties at market rates. The trustee has expertise in investing in works of art, but nevertheless receives independent advice in relation to each of its investments.
The SMSF acquires a work of art after it has received independent advice regarding the soundness of investing in it. The SMSF then enters into an arrangement with a member whereby the member leases the work of art from the SMSF at market rates and subject to normal commercial conditions and controls. The work of art is displayed in the home of the member. There is no contravention of the sole purpose test in these circumstances. The benefit to the member is the opportunity to use the SMSF assets by paying an arm's length amount. There is no cost or financial detriment to the fund as a consequence of the use of the work of art by the member.
Nevertheless, trustees need to ensure that they do not provide a purposeful benefit to the members when undertaking SMSF activities, even if there is no net cost to the SMSF in providing the benefit. Although the impact of an arrangement on the SMSF resources is a relevant consideration, it is ultimately the objective purpose of providing the benefit rather than the net financial impact of the arrangement on the SMSF resources that determines whether the sole purpose test is contravened.
Example C
Loan of work of art to an unrelated party: no breach of section 62
Following on from Example A, the SMSF provides, at no cost, the work of art to a local gallery, for display in a special exhibition that is to run for two months. The work of art provides a benefit for the community at large. However the facts given in this example establish that there is not a
contravention of the sole purpose test as the cost or financial detriment to the fund and the benefits provided by the SMSF outside of those specified by subsection 62(1) are remote and insignificant. The display of the work of art at the exhibition may in fact enhance its future value.
Example D
Loan of work of art to a related party: breach of section 62
Following on from Example A, a related party of the SMSF owns a gallery. The related party charges the general public an admission fee for viewing the works of art at the gallery. It also sells picture cards and pens in the gallery gift store, promoting the paintings currently on display. The SMSF regularly loans its works of art to the gallery at no cost. Its investment choices are also largely determined by the art gallery's desire to acquire certain paintings. In this example there is a pattern of events that result, when viewed in their entirety, in a contravention of the sole purpose test.
Australian Legislative Framework
In Australia Self Managed Superannuation Funds are primarily governed by the rules contained within the Superannuation Industry (Supervision) Act 1993. The relevant sections:
• Section 52(2)(f) - requires Trustees to formulate and give effect to an Investment Strategy that has regard to the whole circumstances of the fund including risk, diversification, liquidity and solvency
• Section 66 – subject to certain exceptions, the Trustee is prohibited from intentionally acquiring assets from related parties of the fund
• Sections 69-85 – outlines the In House Asset rules
• Section 109 – requires the Trustee to operate on commercial terms
• Section 62 – essentially requires the Sole Purpose of the fund to be the provision of retirement benefits and/or death benefits
ATO ID 2004/248 Investment in Art by a SMSF
ATO ID 2004/249 Investment in Art by a SMSF and its display
ATO ID 2004/250 Investment in Art by a SMSF – in house asset
ATO ID 2004/251 Retirement Income Entities – arms length arrangement
Find more at www.ArtBank.ch
If art is managed correctly, it could be of benefit to generations of your family. Art can make an excellent addition to your self-managed super fund, but you need to keep a close eye on the rules. Whether you're investing in art for love or investment purposes, it does not matter as the same capital gains tax (CGT) ramifications take place just like when buying shares, property or ownership in a business.
INHERITANCE AND CONTINUITY
You can spend a lifetime gathering a collection, but at the end of the day what will happen to it, and who will you pass it onto? Strangely, art institutions aren't that keen to be given bequests because of the cost involved in maintaining them (See an article regarding art Philanthropy in our Media section). By bequeathing a valuable painting to family or friends you could be saddling them with a tax liability if they sell it.
If an artwork was bought before capital gains tax was introduced in September 1985, it would generally not be subject to the tax. But if someone inherits an artwork, then capital gains begins from the date they inherited. If the artwork was bought after 1985, the capital gain is based on the difference between the purchase and sale price. Fifty per cent of that gain is then assessable and added to the vendor's income in that financial year. As a result, clients who may have been in a lower tax bracket are pushed up into the higher marginal tax bracket and can loose a large part of the gain in tax.
That's where a self-managed superannuation fund (SMSF) can be very useful.
SMSF is probably the most effective estate planning vehicle that is available to us today which will allow art collections to go on. One of the major benefits of an SMSF is that during the accumulation phase up until you retire the fund pays lower, 15 per cent, income tax and 10 per cent capital gains tax. Once you reach retirement, the fund moves into pension phase and zero tax is payable on both income and capital gains within the fund.
Clients could actually buy works of art as with their SMSF during the accumulation phase, sell it during the retirement phase and have no capital gains tax implications. Then you have cash reserves to diversify into other types of assets to fund your happy retirement.
SMSF: TAKING CARE OF RULES AND REGULATIONS
While any collectable or unique investment can be in an SMSF the asset has to be valued every year the question is: how do you intend to provide for your retirement if these collectables are still in your fund when you retire?
The trustees are required to make sure the assets are being cared for and insured. To accomplish this, the ATO recommends that the collection is placed in storage or leased to an art gallery or commercial premises. If the collection is leased it will be producing an income. But it's rare that all artworks when leased would produce sufficient income to sustain someone in retirement.
And whatever, you do, avoid buying art with SMSF then hang on the wall in your house.
RESTRICTIONS
Provided the Investment Strategy permits the investment in artworks, the following additional factors must then be considered:
• Where will the artworks be displayed – the Sole Purpose Test prohibits trustees from making investment decisions to obtain a benefit prior to retirement:
a. if a member obtains the benefit at no cost, then the sole purpose test may be breached; or
b. if a member or related party obtains a benefit, but pays a commercial lease entered into after 23/12/99, then the Agreement must be documented and the In House Asset rules must be considered (ensure the artwork is less than 5% of the market value of the fund’s assets).
• Detailed expert advice should be sought if the artworks will be held for capital appreciation purposes (as opposed to deriving an income stream).
• Annual costs such as insurance and storage.
• Valuation costs.
Typically the asset allocation within an SMSF might need to change, especially if you are thinking of using 100 per cent of funds towards art using SMSF. In addition, when you come to retire there may be a need to make more changes to the fund to ensure it is able to produce income, unless there is income from other sources.
When buying art as an investment you should seek good advice. Galleries, the primary market, are a source of information but they invariably promote their own selective artists, hence they are quite biased. Auction houses, on the other hand, are like a stock exchange where people are putting their shares back on the market for sale and the market determines how much the market is prepared to pay. They show art sales historical data and the percentage of growth in any particular artist's work. The draw back that you might pay extra 15-20% extra in ‘buyer’s premium’ for the privilege of buying through an auction house.
Sole Purpose Test
If an investment provides some personal benefit, the trustee will need to consider whether that personal benefit is consistent with the ‘sole purpose test’. As a general rule, the sole purpose test provides that the superannuation fund needs to be run exclusively for genuine retirement purposes. There are a limited number of other purposes that are allowed, such as providing against total and permanent disability, but the pleasure of looking at art is not among them. The Administrative Appeals Tribunal has indicated in previous decisions that it will look to whether the trustee has a secondary purpose to make the assets available for their own use and for the use of family and friends in determining if the investment is consistent with the sole purpose test. Where the trustee stores artwork on their wall at home they may be considered to be deriving personal use or enjoyment from the asset. It is not the storing of the artwork on the wall that is the issue; it is the trustee deriving personal use or enjoyment from the asset, such as looking at it. To avoid any doubt, the trustee may need to put it into storage or even place it on loan to an art gallery in return for the gallery providing storage.
Risk Management
Trustees need to be able to demonstrate from a custodian viewpoint that they are taking adequate precautions to protect any artwork held by the fund – it should be kept in a secure location and be stored to minimise damage. The artworks must be adequately insured (by the fund). All these procedures need to be minuted properly.
SMSF: ART LOAN
The dignity of the sole purpose test set out in section 62(1) of SIS has been strained - severely. The Tax Office has set out its thoughts in Draft Self Managed Superannuation Funds Ruling SMSFR 2007/D1 which recognises that while a SMSF may be maintained solely for the purposes set out in section 62(1), a fund may (incidentally) provide members or other entities with benefits other than those specified:
Example A
Use of work of art at no cost: breach of section 62.
A trustee of an SMSF acquires a work of art and does not seek independent advice in relation to that investment. The investment strategy of the SMSF requires the fund to hold a certain percentage of its asset in a portfolio of listed securities. The trustee liquidates all of the listed securities that the SMSF has invested in to fund the acquisition of the work of art. Soon after the work of art is acquired, it is displayed in the home of a member at no cost to that member.
The trustee contravenes the sole purpose test in these circumstances. Where the work of art is provided for the use of the member at no cost, or at less than market value, it indicates that a purpose of the investment is to provide a benefit otherwise than in accordance with subsection 62(1). The liquidation of a class of assets forming part of the SMSF investment strategy reinforces the conclusion that the provision of the benefit outside of those stipulated in subsection 62(1) was purposeful.
Example B
Lease of work of art to member at market value: no breach of section 62
SMSF maintains an investment in a significant art collection as part of its investment strategy, and commonly leases works of art to unrelated third parties at market rates. The trustee has expertise in investing in works of art, but nevertheless receives independent advice in relation to each of its investments.
The SMSF acquires a work of art after it has received independent advice regarding the soundness of investing in it. The SMSF then enters into an arrangement with a member whereby the member leases the work of art from the SMSF at market rates and subject to normal commercial conditions and controls. The work of art is displayed in the home of the member. There is no contravention of the sole purpose test in these circumstances. The benefit to the member is the opportunity to use the SMSF assets by paying an arm's length amount. There is no cost or financial detriment to the fund as a consequence of the use of the work of art by the member.
Nevertheless, trustees need to ensure that they do not provide a purposeful benefit to the members when undertaking SMSF activities, even if there is no net cost to the SMSF in providing the benefit. Although the impact of an arrangement on the SMSF resources is a relevant consideration, it is ultimately the objective purpose of providing the benefit rather than the net financial impact of the arrangement on the SMSF resources that determines whether the sole purpose test is contravened.
Example C
Loan of work of art to an unrelated party: no breach of section 62
Following on from Example A, the SMSF provides, at no cost, the work of art to a local gallery, for display in a special exhibition that is to run for two months. The work of art provides a benefit for the community at large. However the facts given in this example establish that there is not a
contravention of the sole purpose test as the cost or financial detriment to the fund and the benefits provided by the SMSF outside of those specified by subsection 62(1) are remote and insignificant. The display of the work of art at the exhibition may in fact enhance its future value.
Example D
Loan of work of art to a related party: breach of section 62
Following on from Example A, a related party of the SMSF owns a gallery. The related party charges the general public an admission fee for viewing the works of art at the gallery. It also sells picture cards and pens in the gallery gift store, promoting the paintings currently on display. The SMSF regularly loans its works of art to the gallery at no cost. Its investment choices are also largely determined by the art gallery's desire to acquire certain paintings. In this example there is a pattern of events that result, when viewed in their entirety, in a contravention of the sole purpose test.
Australian Legislative Framework
In Australia Self Managed Superannuation Funds are primarily governed by the rules contained within the Superannuation Industry (Supervision) Act 1993. The relevant sections:
• Section 52(2)(f) - requires Trustees to formulate and give effect to an Investment Strategy that has regard to the whole circumstances of the fund including risk, diversification, liquidity and solvency
• Section 66 – subject to certain exceptions, the Trustee is prohibited from intentionally acquiring assets from related parties of the fund
• Sections 69-85 – outlines the In House Asset rules
• Section 109 – requires the Trustee to operate on commercial terms
• Section 62 – essentially requires the Sole Purpose of the fund to be the provision of retirement benefits and/or death benefits
ATO ID 2004/248 Investment in Art by a SMSF
ATO ID 2004/249 Investment in Art by a SMSF and its display
ATO ID 2004/250 Investment in Art by a SMSF – in house asset
ATO ID 2004/251 Retirement Income Entities – arms length arrangement
Find more at www.ArtBank.ch
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