Your Wealth

your wealth Q1, 2009

Redundancies: a harsh reality

If the unthinkable happens, we have a look at what options are available to you.

Page 4

In pursuit of income

In the current environment, with low interest rates and dividends, where can you look for income? Page 6

ABN AMRO Morgans Limited A.B.N 49 010 669 726 AFSL 235410

Reforming the way your income is tested

We explore the proposed income test reforms, and what impact they'll have on you. Page 8

An economic outlook for 2009

2008 proved to be one of the toughest years on record for investment returns and the bad news is that it is hard to see a recovery on the short term horizon.

We recently spoke to Michael Knox (MK), Chief Economist and Strategist for ABN AMRO Morgans and Greg Goodsell (GG), Equities Strategist for ABN AMRO Australia on their thoughts for the year ahead and what we can expect from investment markets.

Editor: There is still a large amount of uncertainty surrounding the global economic environment and it is easy to get disheartened by negative headlines. Do you see any positive signs that conditions are improving?

MK: The global economic environment is really negative. I follow the Chicago Federal National Activity Index and up to December 2008 it showed Continued page 2

that conditions in the US were as bad as 1982. In the last month it has plummeted further. Conditions are now as bad as 1974. I don’t see any obvious sign of the US economy arresting that decline.

A rapidly deteriorating earnings environment in the US also reflects just how tough things are. Prior to the December 08 quarter reporting season (in January 2009) analysts’ expectations were for operating earnings for the quarter of US$14.92.

They reported US$5.70. This is down from a peak of US$27 for the June 07 quarter. This represents an 80% decline from the peak in earnings.

This explains why the S&P500 index has fallen away so sharply in the past couple of months. I think it will take US markets some time to work through this earnings shock.

Having said that, I have spent some time recently looking at the work of former IMF chief economist Kenneth Rogoff and his analysis of banking crises back to the 1800’s.

This suggests that a recovery starts after two years of declining GDP. Based on this analysis, the recession in the US economy should be over by the end of this calendar year.

Another sign that I find very encouraging is that the median price for a house in the US has now declined to US$147,000. This represents 16% of average income, down from 25% a couple of years ago. This makes US housing the most affordable in 30 years.

GG: I would highlight that share markets are intrinsically forward looking, and will look through an ongoing flow of poor economic data provided there is some visibility that the worst may be approaching, and an improvement can be expected. You

don’t need to wait for a full recovery in economic conditions to see share markets starting to stabilise. Work we have done recently on the relationship between recessions and equity markets in Australia suggests that equity markets trough, on average, 30% of the way through a recession.

So while the equity market recovery may still be lengthy, the market tends to stabilise well before any firm signs that the economy has fully turned around.

It is also important to keep in mind during this difficult economic period that the extent of the fiscal and monetary stimulus deployed by governments around the world is quite unprecedented. Governments appear to have learnt from the policy lessons of the past and have acted early and decisively. This stimulus should start to have a flow-on effect once the funds work their way into the broader economy. People often expect an immediate impact from Government spending but the reality is that long term projects, like infrastructure, take at least a year or two before some serious cash starts to get spent, so we don’t think it’s correct to say that the stimulus isn’t working.

A key forward indicator for us through this market correction has been conditions in debt markets as that is where the original problems stemmed from. While there are some signs of stability returning to credit markets we believe a more normal level of corporate lending has to resume before we would feel confident that the worst of the debt crisis has passed and an economic recovery is brewing.

Editor: You talked about Government stimulus but the contrary view is that this move has

shifted the crisis from corporate debt markets to Central Banks with no one to rescue them if it fails. Is this a risk?

MK: There are certainly suggestions that some of the smaller European Central Banks could run out of cash within a matter of weeks. This would be a matter for the International Monetary Fund (IMF). We are not talking about major economies.

GG: Yes it does appear that certain European countries may have difficulty funding some of their commitments and that will give the IMF some work to do. However, bringing it closer to home, the Commonwealth Government currently has no net debt. We are likely to run a fiscal deficit of around 2-3% of GDP in the upcoming period but that is still a very small number compared to, say the US, which is facing a 10%+ deficit. A potentially more significant issue to monitor locally is the extent of government guaranteed bank debt on issue.

Editor: Turning to China, there is so much debate about its state of health and impact on the Australian economy. What are your views on a Chinese recovery?

MK: Well I think you’ve got to look at it in terms of moderating from 12% growth to maybe 7% (although they reported 9% for the full year 2008).

This is a long way from the 4-5% growth of the late 1990s. China has the ability to generate an enormous amount of domestic monetary stimulus, which would kickstart their construction sector and other domestic activity. This is where the focus needs to be – on domestic recovery – rather than their role as an exporter which has obviously taken a hit.

your wealth Q1 2009 GG: Having just returned from China, that’s certainly the Government's focus – to generate domestic demand making the economy less export dependant. Given the nature of their controlled economy you could expect a concerted campaign to get China back on track from within rather than in the export arena. Obviously this is good news for Australia as we benefit as a net exporter, principally iron ore, to China.

Editor: Is it fair to say that China needs to change its focus from investing in US bonds?

MK: I wouldn’t say that the rally in US bonds is due to China’s recent investment. The rally reflects a flight to quality by US investors who have repatriated funds and put them in low risk assets. Foreign investment in US bonds has actually been declining.

My work suggests a US budget deficit for 2009 of 12% and that’s a lot of debt to move. This is the biggest post World War II budget deficit. The budget deficit this year will be twice the size of that in 1982. Bond yields will need to rise dramatically to get this sort of debt funding away. As for China’s role, while they are large holders of US bonds, they won’t have a big enough trade surplus to be major buyers of US treasuries this year.

Editor: Japan is showing worrying signs of dramatic economic decline. Is this more of a problem for Australia than China given they remain our number one trading partner?

MK: Our relationship with Japan during the 1997 Asian banking crisis was interesting. Even though Japan slowed rapidly, there was no slowdown in Australian GDP or export activity in this period. The correlation between the rates of growth of Japan and Australia isn’t as strong as you would expect. There is a much stronger correlation between the Australian economy and the US economy. I expect this is due to our reliance on US financial markets.

GG: I think it is more likely to be the indirect impact from Japan’s declining role in the global community. Their

economy has been sluggish for almost 20 years now while our economic performance has generally been solid.

Editor: So if we rely heavily on the performance of the US do you have a timeframe for a recovery there?

MK: I go back to my earlier point on the Chicago Federal National Activity Index, which is still declining. It’s not the fact that it is declining that you have to watch but the rate of decline.

I’m hopeful this will arrest in the 3rd quarter of this calendar year.

GG: I’d agree it’s a late 2009 at best and, more likely, a 2010 recovery we are looking for.

Editor: Our economy’s dependency on the US for financial funding has been a key reason for the decline of the Australian dollar. Is there a chance of a recovery in the $A on a similar timeframe?

GG: Our view is that the A$ will weaken over the near term on the back of weaker terms of trade and, as the RBA cuts further, a narrowing of the interest rate differential with countries like the US. There is also the view that Australia is seen as a bit of a higher risk play. This was great in boom times when you could borrow in low cost currencies, such as the Japanese Yen, and invest in higher yielding A$ assets. However, as risk appetite in financial markets dissipated this trade was rapidly unwound. The key positive for the A$ is that the funding task facing the US government is huge, and this should put upward pressure on US yields and downward pressure on the US$.

MK: I’ve been very bullish on the Australian dollar based on the strong commodity cycle. Commodity prices have gone from arguably expensive to very cheap. Nowhere is this more obvious than the oil price.

My work suggests that this is about to change. The recovery in the gold price is a good lead indicator. Gold is often the first to lead out of a commodity price collapse. If you look back at the 1930s, gold was the first to recover in 1933 and did seem to lead to commodity price reflation.

"Our view is that the A$ will weaken over the near term on the back of weaker terms of trade and, as the RBA cuts further, a narrowing of the interest rate differential with countries like the US." I think the currency can recover but it is probably a 2010 story or at best late 2009.

Editor: If we conclude from these comments that while the news on the global economy remains negative in the short term it’s possible that we will have a more positive view by the end of 2009, what’s the best strategy for investors?

GG: I think the best thing investors can do is take a realistic, but conservative view. It’s a 2 to 3 year proposition investing in shares at the moment, and over that type of time frame some solid returns should be on offer. However in the interim there may be some pain along the way. From a portfolio construction perspective we believe its still too early to position for an economic recovery, so we recommend you retain a defensive portfolio bias. Yes, there’s good yield on offer compared to cash rates from the banks, but you need to be prepared for share prices to struggle in the near term in the face of a deteriorating bad debt cycle and structural change in many industries.

MK: I’d agree. Caution and patience are still required. 

Redundancies: a harsh reality Unfortunately during economic downturns, such as the one we are experiencing now, redundancies are often a harsh reality for many businesses and their employees.

If you are unlucky enough to receive a genuine redundancy this year what are your options? The answer will depend on what type of employment arrangement you had as at 9 May 2006.

If you were employed under an

existing employment arrangement as at 9 May 2006, and your employment contract included a termination clause which specifies a formula for any potential termination payment prior to 30 June 2012, you have two options.

1. You can take your employment termination payment (ETP) in cash, or 2. You can roll superannuation.

it

into

Why can’t Employment Termination Payments be rolled into Superannuation now?

The Government’s Simpler Super changes include the payment of superannuation benefits to individuals over age 60 to be completely tax free. For this reason, employment termination payments will no longer be able to be rolled into superannuation. The Government believes this would have allowed people to put in place arrangements to avoid the intent of the caps on concessional and post‑tax contributions.

Tax will apply in both instances but the amount of tax you pay will depend on your age and the actual termination payment.

If you were not under an employment arrangement as at 9 May 2006, you only have one option - that is, you must take your ETP in cash.

This payment cannot be rolled into superannuation.

The table on the next page summarises the appropriate limits and tax rates to be used depending on whether there is an existing arrangement in place or not. The preservation age for most people currently over age 50 will be 55 years. So for individuals already over age 55 your employment termination payment will be more concessionally taxed than for those under age 55.

In most cases, a termination payment

your wealth Q1 2009

will also include a “tax-free” portion, which is determined by the number of completed years of service with your employer. This tax free amount is always taken in cash, regardless of whether you qualify under the transitional arrangements or not. The amount of your redundancy over this tax-free amount will be classified as your actual ETP. For anyone, receiving a redundancy package is quite distressing. For someone over age 50 a redundancy is arguably even more significant.

The individual’s first thought is usually “will I be able to find another job due to my age?”. The next thought may be “can I retire now with what I have?

Do I need to continue working?”.

Ensuring that if you do stop work permanently you have enough superannuation and other savings in place to last throughout retirement is very important. Due to the fact we are all living longer, this time period could represent another 20 to 30 years or more. This must be taken into account before making any decisions about retirement.

Leave Entitlements Part of any employer redundancy received will generally also include

payments for unused annual leave and long service leave (if applicable).

These amounts do not form part of the employment termination payment and so cannot be rolled into superannuation, even if you qualify for the transitional arrangements.

Leave entitlements must be taken as a cash payment after tax has been deducted (unless an appropriate salary sacrifice arrangement was entered into prior to the leave being accrued).

Special tax rates apply if the entitlements are part of a genuine redundancy.

Centrelink issues Centrelink benefits may be available (such as Newstart Allowance) providing you are otherwise eligible.

However, you may have to serve an Income Maintenance Period (IMP) and/or a Liquid Assets Waiting Period (LAWP) before receiving your first benefit payment.

The IMP is determined by how much unused annual leave, unused long service leave and certain redundancy payments are received, which will be treated as income by Centrelink under their income test. The LAWP is

Table 1: Transitional Arrangements vs Super Reform Taxpayer’s Age

Under preservation age on the last day of the income year in which the payment is made.

Over preservation age on the last day of the income year in which the payment is made.

Transitional Arrangements (for contracts in place as at 09.05.06)

Super Reform (for employees not under transitional contracts)

Up to a maximum of $1 million: taxed at 30% plus medicare levy; and

Up to a maximum of $145,000: taxed at 30% plus medicare levy; and

Amount over $1 million: taxed at top marginal tax rate plus Medicare levy.

Amount over $145,000: taxed at top marginal tax rate plus Medicare levy.

Up to a maximum of $145,000: taxed at 15% plus medicare levy;

Up to a maximum of $145,000: taxed at 15% plus medicare levy; and

From $145,000 up to $1 million: taxed at 30% plus medicare levy; and

Amount over $145,000: taxed at top marginal tax rate plus Medicare levy.

Amount over $1 million: taxed at top marginal tax rate plus Medicare levy.

Note: the “upper cap amount of $1 million is not indexed.

calculated by measuring your readily accessible (liquid) assets. LAWP of up to 13 weeks can apply if your liquid assets are above a certain level.

Where IMP and LAWP both apply - eg unused leave payments can be counted for both - the waiting periods are served concurrently and whichever is the longer of the two will apply.

You should contact your local Centrelink office to help you determine what your waiting period might be. 

Centrelink benefits may be available (such as Newstart Allowance) providing you are otherwise eligible.

However, you may have to serve an Income Maintenance Period (IMP) and/or a Liquid Assets Waiting Period (LAWP) before receiving your first benefit payment.

In pursuit of income

Interest rates are low and dividends are being cut, so what can yield investors do to support their ongoing income needs?

As we all know the Reserve Bank has followed other Central Banks to drive down the Official Cash Rate to its current level of just 3.25%. And while this is an important step in helping businesses and individuals with borrowings, those relying on interest income have suffered.

In normal times, investors looking for income when interest rates are low would turn to the traditionally defensive sectors such as the banks and blue chip industrials - this time it's different. Because this is a credit

driven event and banks are at the core of it, their capital bases are being hit and future earnings are at risk; as a consequence some companies may review their dividend policies.

Term deposit rates have been pushed to levels not seen in a generation but even so remember it is important to consider your medium term living needs and that you still need to retain some short term investments.

Even though the absolute level of rates is low, it is important to remember that inflation is also low and falling, and so your real purchasing power is still being maintained, which of course is extremely important. Your adviser is well equipped to recommend a range

Table 2: examples of yields S&P Credit Rating

Face Value

Price

Cash Yield

Gross Yield

Yield to Maturity

ANZPB

A+

$100

$ 89.90

5.23%

7.47%

9.16%

CBAPB

A+

$200

$ 164.80

4.13%

5.90%

10.89%

WBCPA

A+

$100

$ 91.60

4.97%

7.10%

9.25%

Issue

In addition, you should look to hold an amount of cash in an “at call” deposit account to meet your everyday needs.

Again, the rates may be lower than we are used to but you should not lose sight of the importance of accessible cash deposits especially in this environment. of very competitive alternatives from quality providers including Bank of Queensland, Bendigo and Adelaide Bank as well as ANZ, and remember all are covered by the Australian Government’s Deposit Guarantee.

In addition, you should look to hold an amount of cash in an “at call” deposit account to meet your everyday needs. Again, the rates may be lower than we are used to but you should not lose sight of the importance of accessible cash deposits especially in this environment. Offering absolute safety, these facilities ensure your immediate cash needs are protected from market volatility.

Your ABN AMRO Morgans adviser can not only assist you with planning your deposit strategy by looking at your household budget but can also help you choose the right deposit product. Two such examples offering complete security are the Bank of Queensland “at call” deposit account managed by DDH Graham and the recently introduced ANZ V2+ account offering easy access while

your wealth Q1 2009

paying a very competitive 3.75% p.a.

This special rate is exclusive to ABN AMRO Morgans and is only available through your adviser.

But what about funds that you want to invest for the longer term? In this time of heightened volatility there are emerging opportunities. Widening credit spreads has seen the capital price of many ASX listed hybrids fall, and while it is frustrating it is not terminal.

Remember, unlike shares most hybrid and debt securities will return to their original value over time. So investing for the longer term at lower prices will see you benefit from better than bank deposit interest rates along with the prospect of capital gain as prices move back towards their original face value.

We would note that while some of the move down in price is rational as the market has adjusted in this environment, there has been a degree of irrationality emerge as prices have, in some instances, moved below what we assess as fair value.

The table on the previous page highlights just a few examples of the yields available and the extent to which prices can recover when we return to more normal credit conditions.

As can be seen we have cash yields that compare very favourably to term deposits, remembering of course that hybrids are not bank deposits but they are investment grade rated. Further, the yields improve significantly if you add in the benefit of franking as shown in the gross yield column.

Finally, the yield to maturity shows the total return should the price recover back to the face value by the conversion/maturity date.

There are new offers also worth considering. Westpac is offering a

new hybrid to replace the St George securities being redeemed and will pay investors a quarterly gross distribution rate of the bank bill rate + 3.80% (~ 7.10%).

AMP has just launched its new ASX listed Notes. These are debt securities ranking ahead of all preference and ordinary shares. The Notes will carry an “A-” investment grade credit rating and will pay quarterly cash coupons to holders. Based on the current market this should be circa 8.05%p. a. which compares very favourably to term deposit alternatives. For more information and a prospectus, ask your adviser.  Initial coupon; based on a margin of 4.75% above an assumed 90 day bill rate of 3.30%.

The bookbuild pricing margin is 4.25% 4.75%.

Your guide to managing through challenging times With news dominated by the state of the global economy, it’s easy to lose sight of your personal big picture and become caught up in the emotion of the day.

With common sense and planning, you can manage through the challenging times.

ABN AMRO Morgans new publication “Your guide to managing through challenging times” provides some practical ideas and strategies to help you save, create and protect your wealth - regardless of your stage of life.

For your copy of the guide call your adviser today

Reforming the way your income is tested The Federal Government has released its new Bill - Tax Laws (2009 Amendment No 1) Bill 2009 - which amends various Acts relating to the reform to income tests for social security benefits, health cards, tax offsets and rebates, government cocontribution, etc. According to the Government’s policy, the proposed changes are designed to “enhance fairness in the application of the income test, and to better ensure that government assistance is targeted to those most in need�.

The proposed changes to the incomes test will affect some of the more popular strategies currently being used by individuals to maximise their benefits and tax offsets. We review some of these strategies in this article. What difference will the changes make to you from 1 July 2009?

works for an employer wishes to make a personal contribution to superannuation and claim a tax deduction for the contribution, they can only do so if the gross income received from their employer is less than 10% of their total assessable income and reportable fringe benefits for the year.

Personal deductible contributions to super and 10% rule

A common strategy for employees who may be slightly over this 10% test is to salary sacrifice a portion of their gross salary or wages into superannuation, thereby reducing their assessable income. This helps them meet the 10% rule and they can then make a personal, tax deductible contribution to superannuation (bearing in mind the concessional contribution limits per person).

If

an

eligible

employee

who

Table 3: Government programs affected by the new treatment of income: Income support payments paid to people below age pension age (payments to people over age pension age already define the income treatment as proposed in the Bill)

Commonwealth Seniors Health Card

Deductions for personal superannuation contributions made by self-employed and substantially self-employed persons.

Spouse Superannuation Contributions Offset

Government Superannuation Cocontribution Scheme

Dependency Tax Offsets

Child Care Benefit

Child Support Benefits

Senior Australians Tax Offset (SATO)

Mature Age Workers Tax Offset (MAWTO)

Parental income tests for Youth Allowance and ABSTUDY

Offset for Trustees under section 160AAAB of the Income Tax Assessment Act 1936

Pensioner Tax Offset

Medicare Levy Surcharge

Higher Education Loan Program and Student Financial Supplement Scheme

Additional Boarding Allowance, Assistance for Isolated Children scheme

Please note: As at the time of writing these changes are not law. The Bill is yet to be passed.

From 1 July 2009: Any amounts sacrificed into superannuation from salary or wages will be added back to assessable income to determine whether the employee meets the 10% rule or not. This means the strategy currently being used will no longer be appropriate.

Example Max earns $18,000 pa working part-time at a local manufacturing business. He is 58 years old and is winding down his work hours in preparation for retirement.

Max receives $25,000 (all taxable) from a transition to retirement pension, and his assessable income from his share portfolio is approximately $11,785 including franking credits.

He has also just sold an investment property for $300,000.

His assessable capital gains (ie less the 50% discount on gains) is $60,000.

His

total

assessable

income,

your wealth Q1 2009

The current CSHC income threshold for singles is $50,000 pa and for couples it is $80,000 pa. If adjusted taxable income exceeds these thresholds, the individual or couple will not be eligible for the health card.

From 1 July 2009: The income definition to determine eligibility for the Commonwealth Seniors Health Card will be expanded to include nonassessable (tax free) income from superannuation pensions and lump sums, salary sacrificed contributions, personal deductible super contributions and total net investment losses. This is a consequence of the expanded “adjusted taxable income” definition under the amended Bill. therefore, is $114,785.

Max would like to make a personal deductible contribution to super to help offset some of the capital gains tax he will incur from the property sale. However, in order for him to meet the 10% rule and be eligible to claim a deduction, Max’s income from his employer must be less than $11,478.

Pre 1 July 2009 strategy - Max will sacrifice $8,000 from his gross salary into superannuation, thereby reducing his assessable employer income down to $10,000. This now meets the 10% rule and he can make a personal deductible contribution to super.

Post 1 July 2009 strategy - Any amount sacrificed to super will be added back to Max’s assessable income.

So regardless of what amount he salary sacrifices, Max will not meet the 10% rule and is therefore not eligible to make a personal deductible contribution to super.

maximum threshold, thereby making them eligible for some co-contribution payment when they make a personal, non-deductible (after tax) contribution to super.

From 1 July 2009: This strategy will no longer be viable as any salary sacrificed amounts will be added back to assessable income for determining eligibility.

Example Debra receives a gross salary of $65,000 per annum. As she is over the maximum threshold for cocontribution eligibility she will not receive any co-contribution payment.

Pre 1 July 2009 strategy - Debra’s surplus cash flow position means she can afford to sacrifice $15,000 into her superannuation fund, reducing her assessable income to $50,000. Debra also makes a personal contribution of $1000 to her account. As a result, Debra is eligible to receive a co-contribution payment of $517 which is payable into her superannuation fund.

Government Co-contribution Post 1 July 2009 strategy - Any amount The maximum cut-out threshold for eligibility to the Government Cocontribution is currently $60,342 (2008/09 FY). Individuals are able to sacrifice a portion of their salary into superannuation so that their assessable income is below this

sacrificed to super will be added back to Debra’s assessable income for cocontribution purposes. She will not be eligible for any payments.

Commonwealth Seniors Health Card

This means that individuals over age 60 currently receiving a tax free pension from their super fund (eg transition to retirement pension), or withdrawing lump sums tax free from their super fund will be assessed on that pension payment or lump sum amount for CSHC purposes.

It also means any salary sacrificed amounts into superannuation, or

According to the Government’s policy, the proposed changes are designed to “enhance fairness in the application of the income test.

10

personal deductible contributions to superannuation will be added back to determine eligibility.

Example - Single Pre 1 July 2009 - Henry is 67 and single. He draws an annual pension of $35,000 from his taxed superannuation fund.

However, Henry’s adjusted taxable income (ATI) is nil as his pension is considered non-assessable, non-exempt income. Henry needs a new car and withdraws $30,000 as a lump sum from his superannuation account.

Henry is eligible for the CSHC as both payments are non-assessable income under existing income tests.

Post 1 July 2009 - If Henry was to withdraw the $30,000 lump sum payment after 1 July 2009, his total pension payments and the lump sum withdrawal will now be counted as part of the adjusted taxable income test for the health card. The amount now counted, being $65,000, is over the singles threshold for eligibility and Henry will lose access to the card.

Example - Couple Pre 1 July 2009 - Gregg and Mary draw a combined annual pension from their superannuation accounts of $82,000. They are both over age 60 so this income is not assessed under the current eligibility test for the Commonwealth Seniors Health Card.

Post 1 July 2009 - Gregg and Mary will lose this eligibility as their combined adjusted taxable income will be over the couples threshold of $80,000 pa.

Example

-

Tax

Contributions Pre 1 July 2009 - Donald is 65 and retired. He is drawing $35,000 pa from his super as a pension. His wife, Grace, is 55 and self employed. She draws $55,000 pa as a salary from her business and also makes a $10,000 personal deductible contribution to superannuation.

Under the existing CSHC income test, Donald is eligible for the card as their combined adjusted taxable income is $45,000. This is based on Grace’s business income less her deductible super contribution. Donald’s pension income is non-assessable as he is over age 60.

Post 1 July 2009 - Under the new rules, Donald will lose access to the CSHC as their combined adjusted taxable income will include his pension income and Grace’s gross income from the business, ignoring any personal deductible contributions (ie the contributions are added back for assessment purposes).

Consequently, their total assessable income is $90,000 and is over the couples threshold.

added back to determine eligibility for Centrelink benefits under the Income Test.

Example Peter is 65 years old and retired.

Wendy, Peter’s wife, is 55 and still working full time. She earns $60,000 gross pa.

Peter has no superannuation; Wendy has $400,000 in superannuation.

Wendy currently salary sacrifices $20,000 pa into her super account.

Their total combined income (after tax) is $60,440.

Pre 1 July 2009 - Under existing rules, Peter receives $213 per fortnight in Age Pension payments.

Post 1 July 2009 - Wendy’s $60,000 will be fully assessable, with the $20,000 salary sacrifice amount added back. Therefore, $472.40 - {($2,307.70 - $240) x 0.2} = $58.86 per fortnight.

Peter’s age pension payments will reduce to $58.86; a reduction of $154.14 per fortnight.

Mature Age Workers Tax Currently salary sacrificed amounts Offset, Spouse Super to superannuation are not assessed Contributions Tax Offset Age Pension Benefits

as income by Centrelink for a person under age 65 when determining eligibility for social security benefits.

This is beneficial in the circumstances where an older spouse receives the Age Pension.

From 1 July 2009: Assessment for the above tax offsets will include any salary sacrificed amounts to superannuation.

Family Tax Benefits (A&B), From 1 July 2009: Any amounts Child Care Benefit, Baby sacrificed to superannuation from Bonus, Senior Australian Deductible a person’s salary or wages will be Tax Offsets, Child Support, Medicare Levy Surcharge From 1 July 2009: Assessment for the above benefits will include any salary sacrificed amounts to superannuation AND/OR any amounts contributed to superannuation as a personal deductible (concessional) contribution.

Contact your ABN AMRO Morgans adviser to find out whether the new income test reforms affect your eligibility to payments listed in our table from 1 July 2009. 

your wealth Q1 2009

11

Share Purchase Plans & Placements Capital raisings have been common place over the past few months as companies look to strengthen their balance sheets and reduce gearing levels. High profile names that we have seen raise capital via Share Purchase Plans (SPPs) or placements include Wesfarmers, Tabcorp, Bank of Queensland, Qantas, Suncorp, Westfield, the major Banks and many of the large A-REITs. We highlight that in many cases SPPs and placements to sophisticated investors can provide an excellent opportunity for investors to add to an existing holding at a discount.

When are you eligible to participate in an SPP? To be eligible to participate in a SPP you must be a registered share

holder of the particular company as at a specified date, which is announced when the details of the SPP are released. Shareholders are then able to accept the offer to purchase new shares at a stated discounted price to the market.

Should you participate in an SPP? Generally, SPPs provide a good opportunity to buy shares at a discounted rate. However, every SPP should be evaluated on the merits of the company raising the capital and you should speak to your adviser in relation to the offer being made. In some cases even if the investor does not have access to funds to take up the offer, a part of their existing holdings can be sold on market and

these funds used to purchase the discounted shares, taking advantage of an arbitrage opportunity.

Placements to Sophisticated Investors In the current market companies will also raise capital via a placement to institutional and sophisticated investors. ABN AMRO Morgans’ Corporate department regularly participates in these placements and clients who are registered with us on the sophisticated investor register may have the opportunity to participate.

There are certain criteria that need to be met to satisfy the requirements of a sophisticated investor and your ABN AMRO Morgans adviser will be able to discuss this with you. ď Ž

choice

YOUR ENTIRE In challenging times, you need to maximise the potential of your superannuation

SUPERANNUATION If you are concerned your superannuation is not reaching its full potential, ask your adviser to review your current arrangements

SOLUTION And if you think it might be time for you to take control, talk to your adviser about how YESS can take the work out of establishing, administering and running a Self Managed Super Fund.

a better way to manage your super

ABN AMRO Morgans Limited A.B.N 49 010 669 726 AFSL 235410 A Participant of ASX Group A Principal Member of the Financial Planning Association

ABN AMRO Morgan Offices

NEW SOUTH WALES

QUEENSLAND Brisbane Bundaberg Burleigh Heads Cairns Caloundra Capalaba Chermside Emerald Gladstone Gold Coast Ipswich Mackay Mission Beach Milton Noosa Redcliffe Rockhampton Spring Hill Springwood Sunshine Coast Toowoomba Townsville Yeppoon

(07) 3334 4888 (07) 4153 1050 (07) 5520 8788 (07) 4052 9222 (07) 5491 5422 (07) 3245 5466 (07) 3350 9000 (07) 4988 2777 (07) 4972 8000 (07) 5592 5777 (07) 3202 3995 (07) 4957 3033 (07) 4088 6188 (07) 3114 8600 (07) 5449 9511 (07) 3897 3999 (07) 4922 5855 (07) 3833 9333 (07) 3808 7588 (07) 5479 2757 (07) 4639 1277 (07) 4771 4577 (07) 4939 3021

Sydney Armidale Ballina Balmain Chatswood Coffs Harbour Gosford Hurstville Merimbula Neutral Bay Newcastle Newport Orange Parramatta Port Macquarie Scone Wollongong

VICTORIA (02) 8215 5000 (02) 6772 1288 (02) 6686 4144 (02) 8755 3333 (02) 9411 8988 (02) 6651 5700 (02) 4325 0884 (02) 9570 5755 (02) 6495 2869 (02) 8969 7500 (02) 4926 4044 (02) 9998 4200 (02) 6361 9166 (02) 9615 4500 (02) 6583 1735 (02) 6544 3144 (02) 4227 3022

Melbourne Berwick Brighton Camberwell Geelong Traralgon Warrnambool

(03) 9947 4111 (03) 9796 2676 (03) 9519 3555 (03) 9813 2945 (03) 5222 5128 (03) 5176 6055 (03) 5559 1500

AUSTRALIAN CAPITAL TERRITORY Canberra

(02) 6232 4999

WESTERN AUSTRALIA Perth Bunbury

(08) 9261 0888 (08) 9791 9188

SOUTH AUSTRALIA Adelaide

(08) 8464 5000

NORTHERN TERRITORY Darwin

(08) 8981 9555

TASMANIA Hobart

(03) 6236 9000

DISCLAIMER - ABN AMRO MORGANS LTD This report was prepared as a private communication to clients and was not intended for public circulation or publication or for the use of any third party, without the approval of ABN AMRO Morgans Ltd (“ABN AMRO Morgans”). While this report is based on information from sources which ABN AMRO Morgans considers reliable, its accuracy and completeness cannot be guaranteed. Any opinions expressed reflect ABN AMRO Morgans judgment at this date and are subject to change. ABN AMRO Morgans has no obligation to provide revised assessments in the event of changed circumstances. ABN AMRO Morgans, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions. This report is made without consideration of any specific client’s investment objectives, financial situation or needs. Those acting upon such information without first consulting one of ABN AMRO Morgans investment advisors do so entirely at their own risk. It is recommended that any persons who wish to act upon this report consult with an ABN AMRO Morgans investment adviser before doing so.

This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment whatsoever.

DISCLOSURE OF INTEREST ABN AMRO Morgans and/or its affiliated companies may make markets in the securities discussed. Further, ABN AMRO Morgans and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included in this report and may, as principal or agent, sell such securities. ABN AMRO Morgans affiliates may have acted as manager or co-manager of a public offering of any such securities in the past three years. ABN AMRO Morgans affiliates may provide or have provided banking services or corporate finance to the companies referred to in the report. The knowledge of affiliates concerning such services may not be reflected in this report.

The Directors of ABN AMRO Morgans advise that they and persons associated with them may have an interest in the above securities and that they may earn brokerage, commissions, fees and other benefits and advantages, whether pecuniary or not and whether direct or indirect, in connection with the making of a recommendation or a dealing by a client in these securities, and which may reasonably be expected to be capable of having an influence in the making of any recommendation, and that some or all of our Proper Authority holders may be remunerated wholly or partly by way of commission.

RECOMMENDATION STRUCTURE Absolute performance, long-term (fundamental) recommendation: The recommendation is based on implied upside/downside for the stock from the target price. A Buy/Sell implies upside/downside of 10% or more and a Hold less than 10%. The target price is the level the stock should currently trade at if the market accepted the analyst’s view of the stock, provided the necessary catalysts are in place to effect the change in perception. If it is felt that the catalysts are not fully in place to effect a re-rating of the stock to its warranted value the target price will differ from ‘fair’ value. Given the volatility of share prices and our pre-disposition not to change recommendations frequently, these performance parameters should be interpreted flexibly. Performance in this context only reflects capital appreciation and the horizon is 12 months.

For listed property trusts (LPTs) the recommendation is based upon the target price plus the dividend yield, ie total return. A Buy implies a total return of 10% or more; a Hold 5-10%; and a Sell less than 5%.

Absolute performance, short-term (trading) recommendation: The Trading Buy/Sell recommendation implies upside/downside of 3% or more. The trading recommendation time horizon is 0-60 days.

A rating of Low indicates very little movement in price over the previous year (Coefficient of Variation < 4 for small caps or < 5 for large caps). A Moderate rating implies average price movement over the previous year (Coefficient of Variation of 9 - 21 for small caps or 7.25 - 15 for large caps). A High rating implies significant price movement over the past year (Coefficient of Variation greater than 25 for small caps or 35 for large caps).

PRIVACY Personal information held by ABN AMRO Morgans Ltd may have been used to enable you to receive this publication. If you do not wish your personal information to be used for this purpose in the future please advise us, including your account details to your local ABN AMRO Morgans Ltd office or to Reply Paid 202, GPO Box 202 Brisbane Qld 4001.

DATE: 02/09

Each stock has been assigned a Volatility Rating to assist in assessing the risk of the security. The rating measures the volatility of the security’s daily closing price data over the previous year relative to other stocks included in either the S&P/ASX200 Index (large caps) or the Small Ordinaries Index (small caps) of which it is a member. This rating is a quantitative (objective) measure provided as an additional resource and is independent of the qualitative research process undertaken by our research analysts.