Understanding Your Personal Balance Sheet – it’s not just money!

Professor Moshe Milevsky, a Finance Professor at York University in Toronto, Canada says that when you look at your personal balance sheet, which lists all the assets you have, don’t just think about assets like your house, car, bank account and Super. The really big investment on the personal balance sheet, especially when you’re very young, is what economists call human capital.

“Human capital is very different to financial capital. Human capital is the value of all the wages, the salaries, the earnings, the bonus, the commissions that you’re going to earn for the rest of your life. The best way to think of human capital is a company with a gold mine or an oil well, where it’s deep in the ground, it’s going to take many, many years to get it out – but, it has a value today and it’s placed on the corporate balance sheet.  Human capital is the same. Your earnings potential is worth something today – and, for many people, that can be millions and millions of dollars.

“So I think overall there are three types of capital when you take a look at what capital individuals have. One is financial capital – pretty obvious, everybody understands it. The next one is human capital. The third is social capital which is something that is much more subtle. It’s the time we invest in developing relationships with our communities. It’s those relationships that you build that allow you to tab into it and create reciprocity. You can’t put that on the balance sheet as easily as financial or human capital, but that’s a very, very important form of capital. And, it explains a lot of behaviour. So social capital, just like human capital and financial capital, drives decision making.

Home Ownership in Australia is Declining

Tim Colebatch writing on the 2016 Census in Inside Story on 5th July 2017 commented that:

“One of the surprises, for instance, was that the overall rate of home ownership in 2016 was not too much lower than a decade earlier. Of those answering the question, 67.1 per cent said they owned their home, down from 69.8 per cent a decade earlier. But there were limitations in the data supplied, which could mean that the census understates the shift.

“For years, compliance in answering census questions has been in decline. In 1996, only 2.3 per cent of households skipped the question on housing tenure. Last year, 7.7 per cent of households answering the census form skipped that question (and many others). Can we assume that they have similar tenure patterns to those who did answer the question? Or is it likely that a higher proportion of those who don’t answer are renters? If so, the published figures understate the decline in ownership.

“Also obscuring the problem is the fact that home ownership rises with age – and Australia is an ageing society. I’m burying the scoop somewhat, but detailed figures given to Inside Story by the Australian Bureau of Statistics show dramatic declines in home ownership by age group since negative gearing took off in the early 1980s.

“Since 1981, the rate of home ownership among twenty-five to thirty-four year olds has crashed from 61 per cent to 45 per cent. (Figures for past census years come from a submission by Sydney University’s respected housing expert Judith Yates to the parliamentary inquiry into home ownership led by Liberal MP John Alexander. The inquiry was cynically terminated by the Coalition before the independently minded Alexander could file a report, then reconstituted under the more compliant David Coleman, who duly reported that if there are any problems with housing affordability, state governments are to blame.)

“Okay, we know that many of today’s young are big spenders on their phones, overseas holidays and weddings, and don’t prioritise home ownership as their parents did; but other young people do want to own their own homes, save as hard as they can, only to find the market out of their reach. Even among thirty-five to forty-four year olds, the rate of home ownership has fallen from 75 per cent in 1981 to 62 per cent in 2016.

“The Census found that in the past decade, the slump in home ownership has spread to higher age groups. This time 28 per cent of households headed by forty-five to fifty-four year olds were without a home they owned, as against 22 per cent a decade earlier. Future budgets will face serious costs if they have to subsidise the rental bills of millions of retirees, rather than the few hundred thousand receiving rental support now”.

Stamp duty and first home owner grant changes in effect across Australia

Stamp duty is paid to the relevant state government when a property transaction occurs. A number of changes were introduced to state stamp duty regimes across the country on 1 July. The rules vary from state to state. Stamp duty is paid to the relevant state government. Some of the changes included:

New South Wales

Much has changed to the stamp duty regime in NSW, which in the last few years has the most active property market in the country. The State Government has introduced new concessions to alleviate concerns that some groups, such as first home buyers, are being squeezed out of the market by domestic and foreign investors.

From 1 July, no stamp duty will be payable for properties bought by first home buyers for homes sold for up to $650,000. Unfortunately few properties in Sydney sell below this new limit though partial stamp duty discounts are also available on a sliding scale for first home buyers that buy properties of up to $800,000.

Additionally, stamp duty on lenders’ mortgage insurance has been abolished from 1July.

On the other side of the coin, investors can no longer defer the cost of stamp duty for 12 months and foreign investors now pay more stamp duty than Australian residents.


In Victoria a similar suite of stamp duty concessions has been offered to people buying their first home. There’s no stamp duty payable for first home buyers whose properties cost up to $600,000, and there are discounts on a sliding scale for properties of up to $750,000.

In Victoria, there’s also a $10,000 first homeowner grant available for new properties that sell for less than $750,000. If the property is in regional Victoria the grant doubles to $20,000.

However, property buyers should note from 1 July stamp duty concessions no longer apply for investors in new, off-the-plan properties. Additionally, foreign buyers pay more stamp duty than Australian residents.

Western Australia

In WA, first home buyers and builders may apply for a grant of up to $10,000, although a $5,000 boost payment for this group ended on 1 July. First home buyers enjoy concessional stamp duty for houses that cost up to $530,000 or $400,000 for vacant land.

Claiming tax deductions on residential property

If you’re invested in residential property, as of 1 July 2017 you’ll no longer be able to claim a tax deduction on travel expenses when you collect rent, conduct inspections or perform property maintenance. This applies to all types of property investors, including SMSFs, family trusts and companies.

Also from that date, there are changes to depreciation deductions for residential plant and equipment – for instance, dishwashers or ceiling fans. Only the investors who actually purchase these items will be able to claim a deduction for their depreciation in value; subsequent property owners won’t be able to claim.

Downsizing your home in retirement

Once you’ve retired and any children have left the nest, you might be thinking of swapping the family home (your primary place of residence) for a smaller property better suited to your needs.

A new government proposal will allow Australians aged 65 or over to put up to $300,000 from the sale of their home into super as a non-concessional contribution – as long as they’ve owned their home for at least 10 years. This contribution won’t be subject to normal contribution eligibility requirements (e.g. the requirement to meet a work test if you’re aged 65 to 74), existing contributions caps or the restrictions on non-concessional contributions for people with super balances over $1.6 million.

If this proposal is legislated, it will take effect on 1 July 2018 – so it’s worth planning ahead now if you’re thinking of downsizing in the near future.

But while it may give you the chance to boost your super for retirement, remember that the extra contribution will be fully assessable under the age pension assets test, and a deemed amount of income will apply under the income test. This means it could impact how much you and your partner are entitled to.

Tax changes for foreign property owners

The government has proposed significant changes to CGT rules for foreign and temporary tax residents. If legislated, these changes will be effective from Budget Night (9 May 2017).

If you’re a property owner and are a foreign or temporary resident for tax purposes, you’ll no longer be able to access the ‘CGT main residence exemption’ on any property bought after 9 May 2017. However, you can still claim the exemption on current properties up until 30 June 2019.

What’s more, from 9 May 2017 if you’re the foreign owner of residential property and it isn’t occupied or available on the rental market for at least six months of the year, you’ll have to pay a yearly levy of at least $5,000.

But that’s not all: on 1 July 2017, the CGT withholding rate where a foreign tax resident disposes of certain Australian property rose from 10% to 12.5%, while the threshold for the CGT withholding obligation dropped from $2 million to $750,000.

So if you’re a foreign or temporary tax resident, the combined impact of these reforms may have a significant impact on your investments.

This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.

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