Best ways to structure for your investment and business in Australia | 找尋最佳澳洲投資及商業架構

Tax Residency & Capital Gain Tax | 澳洲稅務居民資產增值稅

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During his career, Yang was a transfer pricing trainer to Chinese tax offices. Yang has acquired extensive experience on critical assignments including unilateral and multilateral advance pricing arrangements, transfer pricing audit defense and risk reviews, supply chain optimisation, and global documentation.

Yang Shi advises clients on all manners of inbound and outbound cross-border related party dealings, including financing arrangement, services, transfer of tangible and intangible properties and business restructuring. Yang’s transfer pricing knowledge in complex international tax issues has benefited clients across all industry sectors, supported by his dedication in delivering practical and professional services to meet clients’ commercial needs.

Yang has been a prominent presenter at SW’s Mandarin and English tax update seminars/webinars. Yang’s Mandarin transfer pricing WeChat series is unique and reputable among the Chinese community in the Australian market.

Yang Shi is a Partner of SW Audit and a Director of SW Accountants & Advisors Pty Ltd.

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David Chu, Head of International Business, recently joined Thomas Sung on the SBS Radio Cantonese Program to discuss the Australian property market from a financial perspective. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Thomas (host): The RBA and the Commonwealth Bank have each issued research reports, showing that the property market is under tremendous pressure due to the pandemic and may face a drop of up to 40% in the future. Is this the case? First, we will have Mr. David Chu, Head of International Business of ShineWing Australia, share with us his analysis of the Australian property market from a financial perspective. In addition, we will have Peter, who works in the real estate industry, share with you his view on the property market from his personal experience.  Let us first hear the thoughts of David.

David: In relation to office buildings, for example, due to the restrictions, many office staff have been working from home. It has been close to half a year since the local onset of COVID-19 in March. Through ongoing practice, many companies seem to have realised that they do not necessarily have to return to the office environment. Therefore, some of them have changed their future requirements for office buildings, or will instead reduce their footprint by working from home. Some even divided their staff into Team A and Team B to take alternating shifts. From this perspective, the demand for office buildings may decrease. There has been some media reporting lately. Two days ago, it was reported in the Australian Financial Review that a property group was buying Grade C and D office buildings and converting them into residential buildings. On the other hand, some investors feel that as soon as the pandemic is over, people’s passion for travelling will resume. These groups anticipate an ongoing demand for hotels. Therefore, in the long run, if the price is reasonable, they will buy Grade C and Grade D office buildings and convert them into hotels.

Thomas: What about residential properties?

David：Yes, due to the pandemic, many residents in apartments cannot go out due to the stay-at-home restrictions. Even if there are gyms, swimming pools and even other facilities in the building, they are also closed. This will undoubtedly affect newlyweds or the elderly, but more so families with small children. If the children can’t go anywhere, they may feel bored and become impatient. At the same time, for some households, the whole family is packed in an apartment. When the parents have meetings or work via Zoom, they also have to help their children with online classes and home schooling, thus affecting each other. Therefore, some families have begun to consider whether to move to a house or a townhouse that provides more space and at least a backyard for their children to move around. If a swimming pool can be afforded, there will be no need to go to a public swimming pool. This at least gives the children a place for activities. Therefore, in this regard, the pandemic has prompted many parents to think about the liveability of apartments. This may change the real estate market.

Thomas: So there is a new trend in the business community along with the property market, right?

David: Some experts mentioned that commercial buildings may be affected, and residential buildings may be changed too. Some experts have noticed that logistics has become very important during the pandemic. Many people shop online. This may increase the demand for warehousing, cargo storage, logistics and transportation services. That is why some experts have said that there may be an increase in demand for industrial buildings and warehouses. At the same time, there is a new trend in the Australian housing market, known as the build-to-rent scheme. Once a residential building is completed, it is not sold but rented. This has become a new trend in the property fund industry. Many funds would invest in apartment buildings, and then lease them out once they are completed, to generate fixed income. This is an emerging trend in the real estate market.

Thomas: Does this deployment show that the financial sector has better expectations for the future recovery of the property market?

David: Opinions vary from one to another. A few factors underpin the Australian real estate market. First, housing demand depends on the intake of immigrants. The population of immigrants has grown in the past ten years. This has largely contributed to the property price rise in big cities such as Sydney and Melbourne. Second, international students. The more the international students, the greater the demand for housing. However, both factors have changed because of the pandemic. There are fewer international students, and the Federal Government has tightened migration policies. It remains unknown what these changes will bring about in respect to housing demands and prices.

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David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

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David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss a number of tax return considerations for the 2019-2020 financial year amidst the pandemic. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: David, I understand there have been rumours recently that the ATO have been telling people not to rush with their tax returns. How likely is this news to be true? I know you professionals also have a view, right?

David: Yes. You mentioned the ATO has been telling people not to rush with their tax returns. The ATO did not say that, however, some accounting professionals did. That is not wrong. Everyone needs to file a tax return every year. Due to the pandemic this year, people want to do it earlier and get tax refunds sooner. In fact, the ATO has also released some data, noting that as of mid-July this year, more than 1.7 million tax returns have been lodged, and the ATO has already processed 457,000 tax claims, making refunds of more than $1 billion, averaged at about  $2,300 for each claim. The ATO reported that more people filed their tax returns earlier this year than in previous years, an increase of 10% year-on-year.

Host: Are they doing this in order to receive tax refunds as soon as possible?

David: Yes. In the current situation, the unemployment rate has gone beyond 7%, and some informal statistics even show figures above 10%. Even when you are out of work, life has to go on, so some people want to file tax returns and get tax refunds earlier. We note that every time we receive our pay, the employer withholds income tax for us. As some people were underemployed during the first half of this year, and some even lost their jobs, their annual income would naturally decrease. Given the decreased income, the tax withheld by the employer would be more than necessary. By lodging the tax returns earlier, people will get back the refunds sooner. This is reasonable.

Host: Then why did the accountants ask us to slow down our tax filing?

David: There are two reasons. First, when you file your tax return in July, a lot of information about your income has already been submitted to the ATO electronically. Your employer or banks have already submitted your pay or interest information to the ATO. When you file your own tax return, you can read about all your income by logging in to your MyGov account. It is all displayed online and your tax return can be submitted by just one click. However, some organisations might not have done their submission to the ATO in time. Some accountants are worried that if you file your tax too early while some organisations have not done their reporting to the ATO in time, the income information you read on the ATO’s website may not be complete. Then you will need to make supplementary submissions later. Sometimes the ATO will send you a letter asking why you have under-reported. If it is not a large amount, then you can just do a supplementary filing. However, if it is a larger amount, a fine may be imposed. Early tax filing might have consequences of income under-reporting and leave problems for yourself.

In addition, due to the pandemic this year, employees may need to work from home and cannot go back to the office. Therefore, there will be tax relief offered since you will have consumed more water, electricity and gas at home. The ATO will allow deductions for you to claim this year. These expenses can be claimed against your income in tax filing. For these deductions, the ATO provides an option of three methods. The easiest one is, no matter how much water, electricity and gas you use, working from home entitles you to $0.80/hour against your income, and then you just multiply it by the time spent working. Another method is $0.52/hour, plus the work-related proportion of other expenses incurred at home. For example, if a lamp is used at work for two hours, then you will work out a percentage. The third method is reporting your actual expenses, which means your actual costs of working from home. Each method has advantages and disadvantages. The easiest is the $0.80/hour method, which saves you time in keeping detailed records, but it may lead to under-reporting. You will need to figure out which method works best for you. If you file your tax too early and have used the $0.80/hour method, your accountant might say you have underreported it, as the actual amount might be higher than $0.80/hour. Therefore, some accountants will advise you to slow down and do precise calculations, which may be good for you. This suggestion is understandable, for the purposes of claiming more deductions for clients, and reducing tax payments. However, if you use the actual expenses method, the difficult part is keeping all of your invoices and receipts. Can everyone keep these documents properly? Not necessarily.

Host: From the perspective of accountants, which method is advisable? For example, the first one, or the reporting your actual expenses method, which truthfully reflects the situation of the taxpayer, but the third type seems to be the fastest and easiest.

David: Of course, if you can keep complete documents properly and you can show that they can substantiate the actual costs of working from home, then this method might work better for you, as you only need to add up the costs as of 30 June. However, not everyone is able to do so. From the beginning of the pandemic to being advised to work from home, from March to June, if you have kept these documents since the onset, that is undoubtedly excellent. However, if you don’t have these documents, you might not be able to find them, especially those from March. If you rely solely on guessing, you might guess it wrong. A wrong guess may mean over-deduction and tax underpayment, for which there may be penalties in the future.

Host: OK. One last question: It is already the tax filing period, which cuts off at the end of October. When is an advisable time for people to file their taxes? How should they prepare for tax filing?

David: The ATO has always encouraged taxpayers to keep their invoices and receipts. Australia is different from other countries. In Australia, the ATO would initially believe whatever tax deductions you claim, and will give you a tax refund. Nevertheless, the ATO’s system is very sophisticated. How much do people in the same industry report as expenses, and what about people from the same suburb? What about people in the same occupation? The ATO has a sufficiently large pool of information. If the information you provide deviates from the industry or occupation average, the ATO is entitled to investigate you. If you are found to have under-reported your income and over-reported your expenses you may be fined, in addition to making a supplementary tax payment. Therefore, the key is to keep receipts and invoices for all expenses. If you are already doing so, that is great. There is no single rule as to the time of filing. If you have had all the information, of course you can do it as soon as possible. However, if you are not sure that the information is complete, it is not a bad idea to hold off for some time and get the information complete and ready for filing. Many organisations spend a month after 30 June sorting out the information for submission to the ATO. Most of the information should be ready by August. However, if you want to get your tax refund earlier and do not want to wait that long, it is up to you. Some complicated tax filing may need to enlist the help of an accountant. This is helpful because if you file it by yourself, you need to do it before 31 October. If you have an accountant to act on your behalf you will have until early next year or the middle of next year to file your tax. However, if you have a tax claim and file the return a bit later, you will receive the refund later. This is a personal choice. The key is always to have complete records.

Host: This is the most important. If the records are not complete, you have to guess. When the ATO asks you to show the data you filed and you are unable to produce it, the consequences will be serious if you have over-reported your expenses.

David: Yes. Of course no one wants trouble. Keep it as accurate as possible.

Host: Ok. We are very grateful to Mr. David Chu, Head of International Business of ShineWing Australia, for his analysis, and it is advisable that you collect the documents and information during this time and put them in order before filing your tax return. That may be better. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

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David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Foreign Investment Review Board’s plans to tighten approvals for foreign investment into Australia. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: David, the Foreign Investment Review Board (FIRB) recently said that it will make some important changes in 2021, which may cause pains to many companies that want to invest in Australia. What are the changes? How are they different from the past?

David: Actually, in the past, foreign businesses who wanted to invest in Australia did not need approval if their investment did not exceed a certain amount. For example, for certain commercial investments, or even for commercial real estate, if the consideration did not exceed $230 million, no approval was required. Approval was indeed required for transactions of more than $230 million. If farmland was purchased, no approval was required if the purchase did not exceed $50 million; however, if it did go beyond $50 million, approval was required. The regulations on what needs to be approved have been changed from time to time, but there is always a threshold for approval.

On 29 March, the Treasurer announced that no matter the amount of investment, even if it is $1, approval would be required. He said that due to the pandemic, many businesses or real estate sectors had had a price fall, leading to concerns that Australian properties or businesses will be acquired by foreign investors for an unreasonably low price. The Treasurer also indicated that this was not targeted against any country. That makes sense. Of course, you may have observed that there have been more buyers from China in the past ten years, but the United States and other countries have equally invested heavily in Australia. In March, the media reported that there was $10 billion of funds ready from the United States to buy cheap assets in Australia. It therefore makes sense that this proposed requirement might not necessarily target against China. When it comes to stock of foreign investment, the United States accounts for 20%, Japan and Canada 10% each, and China only 5%.

Host: Five percent, right?

David: Yes, that is why the Treasurer said that the policy change is not targeted against China. If even investments of $1 needs to be approved, there will certainly be a long waiting list. Therefore, the Treasurer  also said that the approval might take 6 months. From the perspective of foreign investors, many may not be prepared to wait for six months.

Host: Things change rapidly.

David: Yes, if the price rises in six months, sellers will be reluctant to sell, and if the price falls then buyers will be reluctant to buy. Many changes can occur while an investor is waiting, so foreign investment may be affected. On 5 June the Treasurer issued a new notice. Starting from January 2021, there will be a new regime of approval rules and regulations. The biggest change is that they will consider national security factors in the approval process. In the past, it was only national interests, but now national security is considered. That means, if certain projects involve national security, the Treasurer has the right not to approve them.

However, some projects might not have national security concerns when they were approved. For example, some high-tech and innovative projects may involve one to two million dollars or 20 to 30 million dollars when they make initial investment. Their initial plan was just to serve the general public with day-to-day technology. However, technology is technology. If one day, the same invention can be used in national defence, communications or media, then the Treasurer  has the right to review the investment, and consider whether additional information is needed. If the Treasurer finds it to be posing a threat to national security, they may even have the right to ask the investor to divest.

Host: This is harsh. For a foreign investor that has just arrived in Australia, they may have no clue whether their project will be used for defence purposes in the future. This will bring about more uncertainty, right?

David: Yes. Therefore, in this regard, experts, including accountants and investment banks, now hope that the Treasurer will give a clear definition of “national security” when the exposure draft is released. The Treasurer also said that the draft legislation will be published in July, and then there will be a six-week consultation period. If people in the industry and the general public have any comments on the proposed changes, they must submit their opinion to the Treasurer within six weeks. After the legislation is passed, it will be effective as of 1 January 2021. Therefore, many foreign investors who invest in real estate or businesses or other assets in Australia are advised to pay special attention to this upcoming legislation.

Host: Will this new legislation affect the business of some partners? For example, if I am a foreign investor, and I need to collaborate with an Australian company to operate a business, but only hold 20% stakes, will I be affected?

David: Yes. Some people in the investment community also expressed their view that this particular change will not have a large impact on foreign investment. Some investors hold a very small percentage in the business with no influence at all on the management of the business. There are even sovereign funds from other countries. They are willing to invest passively in some projects, and would like to see some relaxation to make things less complicated. However, we need to wait for the details, that is, to wait for the exposure draft to be released. Please stay tuned.

Host: So to speak… I heard that FIRB’s new regulations will affect some foreign investors who come to invest in properties in Australia, right?

David: One of the many proposed changes is quite special. You may have also noticed that if Australians or Australian residents buy residential property, there was no need for approval. For foreigners, such as international students or temporary visa holders who come to buy residential properties in Australia,  approval is required for existing properties. Usually FIRB will approve it, but with a condition that it shall be sold once the visa expires or once the international student has left Australia. This time there is a very special change – even if you are an Australian resident, but you buy the property with funds borrowed from a non-resident parent or a non-resident spouse, it may not be approved. So pay attention to this.

Usually the young Asian people or people who have just finished school and started to work, may not be able to afford a home, and they buy with money from their parents. Of course, parents may gift this money to their children or by granting loans. This change will affect the loan case. The Treasurer explained that he does not like seeing situations where only one person in the family is an Australian resident, and this person borrows money from his/her non-resident parent or spouse to buy more than a dozen houses, which leads to land banking. This is the reason given by the Treasurer. If viewed from another angle, if this person is not borrowing money from his spouse, will the purchase  be approved? If he/she borrows from a foreign bank, will that be approved? This is a bit of room for discussion. As for how the proposed changes would look, we need to wait for the details to understand further.

Host: Great, David. We may need to call it a day. It is now July. This draft is believed to be under heated discussed by all walks of life. In time we should have you here again to analyse the situation. Big thanks to David, Head of International Business of ShineWing Australia, for sharing with us the new developments of the FIRB regulations. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

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David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Federal Government’s new infrastructure plan. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: David, we all know that the Prime Minister announced substantial expenditures for a series of new infrastructure projects on Monday. What are these projects? How is the market reacting?

David: In fact, the bushfires and the pandemic have both hit the Australian economy, resulting in a drop in gross national product by 8-10%. Especially during the pandemic, many businesses and shops have ceased operations due to the restrictions. Therefore, the government has come up with many plans for the post-pandemic recovery of the economy, one of which is to create jobs for the people through a number of infrastructure projects.

The Prime Minister mentioned that originally the Federal Government had $1.5 billion worth of infrastructure development initiatives in place, and now they have expanded the scope to allow some smaller projects to commence earlier in Victoria and New South Wales. The major reason is to generate employment, given the Federal Government estimates that the unemployment rate could hit 8% in September. In addition, the JobKeeper payment of $1,500 per fortnight is about to end. In this case, therefore, the government has to start thinking about how to get jobs back for the people.

Host: So what are these projects?

David: They include the construction of reservoirs. The Federal Government hopes to secure water supply by building more reservoirs. Water is important for residents in the urban areas, but it is even more important for agriculture. The Federal Government intends to adopt new measures to ensure water supply. There are also other projects, including communications. Urban residents have better access to the Internet and other means of communications. In rural areas, however, the cost of laying telephone lines is high. They are in dire need of wireless Internet facilities to facilitate communication.

These projects would commence ahead of schedule. In Melbourne, it is expected that the railway between the airport and the city centre will be launched as soon as possible. It is also expected that a rail line will go all the way down to Melbourne from Brisbane. There are also some power supply facilities between Tasmania and Victoria. All these projects will be launched as soon as possible, from which the Federal Government hopes to create about 66,000 new jobs.

Host: As far as I know, this is only the first stage, right? There are more projects, correct?

David: Yes. Of course, large-scale infrastructure projects would require further approval. There are environmental protection issues which contractors have to take care of. Generally, addressing these issues would normally delay the approval by three or four years. This time the approval process is said to be simplified, and it is hoped that the projects will be approved within an average of 21 months, meaning at least two years shorter than the normal timeframe.

The proposed reform will allow projects to be launched earlier. If following the original three-year timeframe, these projects will not be able to contribute as expected. Even if they eventually start, they will not resolve the economic challenges following the end of some relief measures in September.

Host: The Federal Government hopes to launch some short-term large-scale infrastructure projects in a short time, or shorten the approval timeframe for large-scale public facility projects. According to you, this is actually quite urgent, because the stimulus packages introduced by the Federal Government will end in September. Now everyone seems to be worried about it.

David: Yes. In fact, economists have expressed different opinions. Many measures will end in September. For example, the bank allows deferral of mortgage repayment for six months; and landlords allow deferral of rental payment for six months. In the case of debts, the threshold on which creditors may initiate recovery action at the small claims tribunal is raised from $2,000 to $20,000 for six months. In addition, previously, creditors could demand bankruptcy of debtors if the debt amounted to $5,000, which has now been raised to $20,000. All these measures will end in September. Economists have suggested that new measures may be introduced to gradually boost the economy, and the original measures should not be terminated all at once. For example, in terms of debt collection, it is now not allowed to collect debts in six months. The banks’ statistics shows 480,000 home mortgage deferral applications, and more than 210,000 commercial loan payment deferral applications, involving a total amount of $230 billion.

Nonetheless, temporary non-repayment does not mean waiver of repayment. On the other hand, however, the banks are concerned that if the borrower does not repay the loan in the future, it will increase the bank’s bad debts. That being said, some economists say that the government may now have to work with banks to reduce the number of deferrals. For example, a few banks have also said recently that they have begun discussions with their customers on the timetable for repayments. About 10-15% of the NAB customers who applied for such deferrals have already resumed normal repayments; about 4% of the Westpac customers have done so; and about 5% of the ANZ customers have done so. Some experts in asset restructuring and insolvency say that the sooner these resume, the better it will be. It is good to know earlier if a customer cannot service the loan, so that the bank can get prepared; otherwise, they will have to deal with a sudden surge of borrowers failing to repay their debts in September, just like a landslide, which will impact the entire financial industry.

Host: The general understanding is that the bank is the mother of all other industries. If the banks are not doing well, it will affect not only the bank itself but also the entire financial sector.

David: Yes. There is more than that. Some experts also advise companies that were working well to be cautious, because if a customer applies for a trade credit, if the customer cannot service the debt, the lender will be affected, unable to recover what has been lent. Experts remind that even a well-functioning company should be cautious when extending credit. If any credit is extended in these couple of months, and the customer is unable to repay, the company’s cash flow will be impacted. The general public certainly likes to have peace of mind.

Host: Given the situation, the Federal Government is also expected to introduce some new measures to deal with the end of certain aid policies in September – to continue these policies or to introduce replacement policies, so that the economy will stay on track.

David: Right. We all know that the government is working hard on viable plans from various aspects to restart the economy.

Host: Okay, we are very grateful to Mr. David Chu, Head of International Business of ShineWing Australia, for sharing with us how the market has reacted to the Federal Government’s latest infrastructure plan. Thank you very much.

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post The Federal Government’s infrastructure plan to boost employment appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the Reserve Bank of Australia’s diagnosis of the Australian economy as well as the problems arising from the lifting of Hong Kong’s preferential tariff status by the United States. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: David, the Reserve Bank decided to keep the interest rate unchanged. Everyone knows this will happen, but what else did they say?

David: Before the meeting, economic experts had known that the RBA would keep the interest rate unchanged, because the RBA had said more than once that 0.25% was already the lowest they could afford. Unless something drastic happens, their decision will not change. So, economic experts have in turn switched their attention to what the RBA has said. When the Governor of the RBA announced his decision to keep the interest rate unchanged yesterday, he mentioned a few points. Firstly, the current Australian economy is indeed in a difficult period; secondly, the upside is that the consequences of the economic downturn may not be as bad as they initially expected; and thirdly, 600,000 people were being laid off in April, a large part of whom had their working hours reduced to zero. Household consumption is also quite weak, with many investment plans cancelled or postponed. However, they noted improvements in working hours in May, but overall the outlook remains very uncertain. They said the most important is how much confidence the general public has in the prospect at this current difficult time, which will have a direct impact on how well the Australian economy will recover in the future and how long such a recovery will take. Therefore, the RBA said they will make every effort to facilitate employment, improve personal finance and promote business finances, including maintaining low interest costs and sufficient market liquidity.

Host: In fact, the Reserve Bank has mentioned confidence more than once. There is virtually not much they can do. It is difficult to improve the economy through monetary policies.

David: They also mentioned before that by lowering the interest rate to 0.25%, they have almost exhausted their available measures. If the rate cannot be cut further, it would require quantitative easing and fiscal policies. The government may stimulate employment through tax reforms.

Host: I am aware that on Tuesday, Roy Morgan also published an Australian Consumer Confidence report. What does it say specifically?

David: Yes, Roy Morgan conducts a consumer confidence survey every week. They said last week’s consumer confidence index rose to 98.3%, an increase of about 5%, marking the 9^th straight week of increase. That means this index has rebounded and been rising for nine consecutive weeks since the sharp fall at the onset of the pandemic. Among the people they interviewed, 24% said their financial situation this year is better than last year; but 36% of the respondents said their financial situation is worse than a year ago. They also asked about the interviewees’ thoughts about the future, with 38% saying that they expect their economic conditions to be better at the same time next year; and 17% saying it will be worse than now. It seems the public’s confidence in consumption is gradually improving. It is now clear that after the government spent $200 billion, the situation seems to have improved slightly.

Host: We can see that many states in Australia are reopening. In fact, the economic atmosphere and economic activities have also increased significantly. I know you are currently in Hong Kong, so I wish to ask you some questions regarding Hong Kong now facing the lifting of its preferential tariff status by the United States. Now a week has passed, has everything been settled? What is the sentiment of the business community?

David: When Hong Kong announced the national security law at the time, a bit of shock followed in the market, and now the public is also waiting to see what the legislation will look like. Some people said that in fact, many developed countries in the world have similar national security laws. It is nothing special for Hong Kong to have one as a special administrative region of China. Of course, there are also people worrying about how this law will be implemented. Do they have confidence with this law? There is worry at this stage. The business community said that national security law will secure peace for the market so that everyone can conduct their business, which is not bad. Let us recall that it has been almost one year since last June, from social unrest to the pandemic. It has become very difficult to do business in Hong Kong. So, how much can the public can tolerate this? No one knows. To be frank, no one wants turmoil.

Host: An incidental issue is that there has been a recent rumour about Hong Kong dollars being decoupled from US dollars. The Hong Kong dollar has twice been targeted and attacked by foreign funds, but neither attack succeeded. Does this actually reflect the strong status of the Hong Kong dollar?

David: Yes, in fact the linking of the Hong Kong dollar to the US dollar does not require the approval of the US government. Everyone knows this now. Nonetheless, it remains unknown whether the US government will create a lot of trouble for Hong Kong. You see that in the current Sino-US controversies, from the trade war to the technology war, many economic experts also commented that a financial war is inevitable. As part of such a financial war, will the United States make trouble in Hong Kong, as the financial centre of China? This may have also been expected. For example, the Hong Kong Economic Journal quoted a BNP Paribas report that from 2010-2018, 73% of the overseas fund-raising of Chinese companies was done through Hong Kong, and 60% of bond issuance was done through Hong Kong. Therefore, Hong Kong holds a very important position to China. Earlier, you mentioned that foreign funds had twice failed in attempts to hit the Hong Kong dollar, and the reason lies in the mechanism of the link between the Hong Kong dollar and the US dollar. In other words, whenever someone from outside of Hong Kong exchanges US dollars for Hong Kong dollars, the Hong Kong government always meets the exchange. In turn, if you bring in Hong Kong dollars, the Hong Kong government can also exchange them for US dollars. The policy of the Hong Kong government is that every single Hong Kong dollar circulated is backed up by the corresponding US dollar. Technically, if you want to wrestle the Hong Kong dollar to the floor, you have to keep buying US dollars and selling Hong Kong dollars. The challenge will be a matter of whether Hong Kong actually has enough US dollars to cope with matching every single corresponding US dollar, unless you have other channels to secure sufficient Hong Kong dollars. Therefore, although foreign funds have twice attempted to short sell Hong Kong dollars, the Hong Kong government understands how much Hong Kong dollars are circulating in the market. The only option left for foreign funds is to borrow Hong Kong dollars for exchange settlement. Therefore, in the last two attacks, the HKMA raised the interest in borrowing Hong Kong dollars to 10-20%, resulting in the foreign funds spending a lot of money simply paying the interest. Their attacks were in vain. Therefore, the Hong Kong dollar should be relatively stable. However, if you want to start trouble, there is always a way. Since many companies do business or financing in US dollars, it will be another story as to whether there will be sufficient US dollars when repayment comes due. The Hong Kong government also signed an arrangement with the Chinese government some time ago, to ensure that if the Hong Kong government runs out of US dollars, the Chinese government will lend their US dollars to the Hong Kong government for settlement.

Host: Then we have to see if this financial war will really break out. It seems that everyone is now trying to find out about it. Okay, big thanks to Mr. David Chu, Head of International Business of ShineWing Australia, for his analysis of the RBA’s diagnosis of the Australian economy and the problems arising from the lifting of Hong Kong’s preferential tariff status by the United States. Thank you!

David: Thank you Thomas! Thanks everybody!

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David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post Economic insights: Australia, Hong Kong and the U.S. appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the current state of the Australian economy and what it’s future may look like. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: On Tuesday, both the Chairman of RBA and the Minister for Finance separately issued statements to the public on Australia’s financial policies. What exactly was said in the statements? How do they  feel about Australia’s economy? What is the reaction of the financial community? To answer these questions, we once again welcome Mr. David Chu, Head of International Business of ShineWing Australia, to share his analysis.

David: The RBA will keep the interest rate unchanged at 0.25%. In fact, this is within everyone’s expectations. Economic experts said that the change in interest has been determined, but the most important thing is to hear what the RBA Chairman says in his speech.

Host: So what exactly is disclosed?

David: Yes, the RBA Chairman was ‘cautiously optimistic’ in his statement. Economic experts also found that the Chairman was calmer this time than on the last two occasions. It seems that he also feels that the impact of the pandemic on the Australian economy has been alleviated, so their conclusion is that the Chairman believes the impact of the pandemic on Australia has almost reached its peak.

Host: This is a good thing. If the Reserve Bank does not add  more measures, it would mean that the current monetary policy is functioning.

David: You can say that again. At the same time, however, economic experts say that the RBA has almost exhausted its ammunitions, and the interest rate has fallen to such a low level of 0.25%, which is already right down the bottom. Australia and Europe are in different environments and it is impossible for the interest rate to go to negative figures in Australia. Therefore, the interest rate, as a tool, at 0.25% has already reached its limit. The Chairman also mentioned that they have another set of measures, which is quantitative easing.

Host: That is buying bonds.

David: The question is what kind of bonds to buy? Bonds also have credit ratings.

Host: Yes, yes.

David: In the past, if the RBA wanted to buy bonds, they could only buy A1 rating bonds for short-term ones, and now they can buy A3 rating bonds, which is a category of lower quality and higher risk. In the case of long-term bonds, the RBA would only buy the AAA rating bonds in the past, but now they have lowered it to BBB rating bonds. That  means, if further quantitative easing measures are used, the RBA will be willing to buy some lower-quality bonds to increase liquidity. This is not a bad thing, but after all it is hoped that liquidity can be maintained without buying that much.

Host: Many people say that in buying these bonds, the RBA is in fact helping some companies. Since in a very volatile situation, many people will sell their bonds, regardless of their grades, for cashing out. If your bond itself is rated low, plus in a very volatile situation, no one is willing to take over, and then there could be a crash, and once the crash happens the company may collapse. Is the RBA now trying to help these companies?

David: In fact, the RBA’s action this time is mainly to help some financial institutions, because these financial institutions and investors are the main buyers of the bonds issued by companies. If the financial institutions have got these bonds which have a lower liquidity, they cannot dispose them without a big loss. If the RBA buys them that will allow these financial institutions to get some liquidity back for further lending. That’s why it is mainly to help some financial institutions. As to what kinds of bonds they are (like you just asked), we would recall that the 2008 Financial Crisis was caused largely by some junk bonds collapse. Whoever was holding those bonds was in trouble. That led to a lot of financial losses in the market in that situation.

Host: Due to time constraints, let’s change the topic. The Treasurer attended a national press conference on Tuesday. The picture he portrayed for the Australian economy was pretty bad, right?

David: The Treasurer estimates that the unemployment rate will reach 10%. The figure released by the Australian Bureau of Statistics last time was only 5.2%, mainly because that 5.2% was based on statistics in early March. Now it will reach 10%. He said that if we did not have our own stimulus package in Australia and had instead followed Europe, our unemployment rate would have risen to 17%. Take this as giving credit to himself. However, others from the financial sector, such as ANZ Bank, believe that the unemployment rate may actually rise to 12-13%. As for the government’s stimulus packages, a total of $320 billion has been used, equivalent to 10% of GDP. Without these measures, if the economy would have continued to slump and Australia would have suffered $4 billion economic loss per week. Therefore, the Treasurer said that through these economic stimulus packages, Australia is managing to stabilise its economy, with the hope of a rebound after the pandemic. Let’s see how the situation will evolve. Economic experts have already begun to say that the pandemic is close to an end, and it is time to think about how to make the economy start again.

Host: Did the Treasurer say that once the economy starts again, what preparations we should make now, such as some forward-looking policy deployment?

David: They said there might be some measures coming out. Many economic experts have proposed many different strategies. It is like, for example, when a car does not start due to a faulty battery and you want to make it start again. You need to jump start it by connecting a cable to another battery. What are the specific measures or methods in consideration? In general, economic experts say that there are three most important points.

First is that there must be some measures to help SMEs, because SMEs are almost the driving force of the Australian economy. If they cannot start again, there will be an impact on the entire economy, especially employment. In terms of SMEs, the most important thing is to target the hardest hit industries, i.e., tourism, leisure, retail, restaurants, etc., to help them start again and hire new employees.

Second is that, as some economic experts suggest, to allow international students or foreigners holding short-term working visas to return as soon as possible. That is because, due to the pandemic, 300,000 people on short-term visas have now left Australia. If you think about the total population of Australia that is only 25 million, 300,000 comprise a relatively significant group. Some experts say that we may need to allow these people to return as soon as possible. In the first place, they will create consumption in Australia; second, we need to generate export income provided by foreign students for Australia. It amounts to tens of billions of dollars.

The third is, as some economic experts suggest, to take this opportunity to change the tax system. Despite so many investigations on tax reform, no substantial changes have been made. They also mentioned that, for example, when buying a house, we need to pay stamp duty. This stamp duty actually goes into the state government’s treasury, but economic experts suggested that the every dollar of stamp duty may have an adverse effect equivalent to eighty cents on the gross national product.

Another thing is the Australian corporate income tax. The corporate income tax rate is now 25%. Economic experts also say that every dollar of corporate income tax going to treasury will have a fifty-cent impact on the economy. So do these types of taxes, which have a greater impact on the economy, require some sort of reform? In their view, it is certainly impossible to simply cut taxes. After all, the government needs money to spend. They may consider starting with changes in GST, because this tax is only paid when something is bought. In this way, the reduction in stamp duty and corporate income tax can be compensated by an increase in GST. This provides more encouragement for people to engage. By making more money and paying less income taxes, they increase their after-tax income. If the local government receives less money from one source, it will make up for it from other sources. So there are different approaches, depending on what measures the government will take to get Australia’s economy back on track as soon as possible.

Host: Yes. David, you are a professional accountant. A lot of people are discussing one thing. Even when Australia is in a good economic condition, the reporting regulations, tax arrangements and accounting requirements are quite burdensome, making some companies spend a lot of money in compliance. What is your opinion on this?

David: Yes, the tax system in Australia is really complicated. The more the tax regulations, the higher the compliance reporting requirements. This has caused the public to spend a lot of energy and money on tax compliance. Therefore, business groups say they hope that the tax system can be simplified, so that the general public can save their energy for more constructive activities, such as doing more business or even spending time with their families. This is a good thing.

Host: Yes, yes. Big thanks to Mr. David Chu, Head of International Business of ShineWing Australia, for sharing with us his opinions on the Australian economy and the statements made by RBA and the Treasurer issued on Tuesday, as well as the forward-looking views of the financial community. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post What can we expect from the Australian economy? appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the current state of the property market in Australia following reports of an expected fall of up to 32%. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: After looking at the global securities market, let’s get back to the situation in Australia. The Commonwealth Bank said in its recent announcement that Australia’s property market may fall up to 32%. The news gave many a terrible fright on its release. Later, many analysts stepped out to provide their analyses with the belief that the Commonwealth Bank’s forecast seemed too conservative. What is the situation? We have David Chu, Head of International Business of ShineWing Australia, here today to share his opinions.

David: When the Commonwealth Bank mentioned real estate in the release of their annual results, they estimated that it will fall by 32%.  But if you look closely, you will find that they were mentioning 32% from March 2020 to March 2023. That is, it will fall by 32% in three years, not 32% in one year. It is definitely startling if you just see the headline.

Host: On what basis did they make such a guess?

David: They said if the pandemic led to the economic recession and the recession continues for a long time, that is what will happen. Nevertheless, be careful while listening, the expression they used is “prolonged crisis”, which was referring to what it will be like if the current situation continues. Their point of view is assuming the economic growth these several years, for example, in 2020 to be -6%, then an increase of 6% in 2021, with the unemployment rate of 8.25% in 2020, which will stay at 8% in 2023. They said if that is the case, the property market will fall by 32%. Some economic experts commented that this might be “the worst case scenario”.

Host: In that context, what would be a more balanced estimate? How will the property market develop? Will there be support?

David: Of course there are other economic experts who agreed that the Commonwealth Bank’s plan should be the worst case scenario. Some economic experts estimate the economic growth in 2020 to be a bit worse, -7.1%, but in 2021 it may come back with a rise of 0.3%. The unemployment rate will be 9% in 2020, 8.5% in 2021, and for 2022 and 2023 depending on how things evolve. With this in mind, home prices may only fall by 11% from 2020 to 2023. Some experts also said that as an investment tool, buying a home and leasing it out for rent is not really that bad, which gives at least 3-4% return, better than putting the money in the bank, which yields at most 1% interest. After all, the RBA interest rate is only 0.25%. Relatively speaking, the return on real estate investment should be good enough to support home prices, so some economic experts have a more optimistic view. Nonetheless, experts do agree that housing prices will fall, and it is just about how much it falls by.

Host: I know that experts have different opinions on home prices. What do they say?

David: Some experts believe that if the pandemic caused the economic recession, and if growth can be resumed as soon as possible, home prices should not fall by as much as 30% in three years. Experts from some other Big 4 banks said that only a 10% drop on average might take place over the next 12 months. UBS’s estimate is a drop by 10-20%, and Morgan Stanley believes it will drop by about 15%. AMP Capital is relatively pessimistic, saying that it may drop by 25%. Of course, these are all estimates by various institutions at such an early stage. As for whether it will fall by 32% in three years, this is of course based on some of the more conservative assumptions just mentioned.

Host: So during this pandemic, I know that some tenants have found themselves in difficulties. One report said that close to 10% of the tenants across the country asked landlords to reduce rents. I know that rent reduction has been voiced and demanded overseas, such as Hong Kong. I heard someone has made it happen. Is this common in Australia?

David: In fact, this is quite common in Australia, and it may have even been requested by more people in Australia than in Hong Kong. The main reason is the introduction of some regulations in Australia. Firstly, landlords of both residential and commercial buildings can’t evict tenants for these six months, because if you lose your job, it is naturally difficult to repay your mortgage and rent. On the payment of rent, some leases clearly stipulate that after two or three months of default in rent payment, the landlord can request termination of the lease and demand vacation of the property. The same is true for commercial properties. Therefore, the government issued a rule that tenants should not be evicted for six months. Second, if you have difficulty repaying your mortgage, you can also apply to the bank for deferring your repayment. On loans, the Commonwealth Bank also mentioned in their release of annual results last time that they received 140,000 applications on home mortgages and 70,000 applications on commercial loans. On personal loans, like credit cards, the Commonwealth Bank received 25,000 applications. The general public has also made requests to reduce their burden. Some of my friends lease out their shops and tenants are asking them for rent reductions. It depends on how their negotiations with the owners go. Some just don’t want to waste a large amount of time negotiating and go ahead to halve the rent; some say that the rent can be reduced, but in exchange for an extended lease, so that the loss will not be significant. So everyone deals with it their own way. Getting back to your question whether this is common, it is indeed more common in Australia than in other countries, and the situation may be much better than that of the United States.

Host: We also expect these measures to give some relief to the tenants who are now hit by the pandemic. We are very grateful to Mr. David Chu, Head of International Business of ShineWing Australia, for taking the time out of his busy schedule to share with us his analysis of whether proper prices in Australia will fall by 32% under this pandemic. Thank you!

David: Thank you Thomas! Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post The impact of COVID-19 on Australia’s property market appeared first on SW Accountants & Advisors.

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the financials measures that both the Australian and Chinese governments have released in response to COVID-19 and analyse the potential opportunities these measures might bring. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: We know that the whole world is introducing a wide range of financial measures to save the market, whether it is Hong Kong, China or Australia. Our focus being placed on China and Australia. Actually the two countries are taking different financial actions. Is there any room for new business opportunities to be created? To answer this question, we have David Chu, Head of International Business of ShineWing Australia here today to share with us his analysis. Hi David!

David: Hi Thomas! Hi everybody!

Host: David, as we know, Australia and China have each introduced some financial measures to save the market. Now everyone is talking about one issue – whether any business opportunities have been created in this situation. Please share your thoughts with us.

David: Correct. The Chinese term for “crisis” – Ngai Gei, implies both danger (Ngai) and opportunities (Gei). This pandemic creates a difficult situation that companies may need to address. At the international level, close to 60% of the countries have shut down their borders, keeping all visitors out. Travelling is a big hassle. Trading has been affected a bit, and investment has to be put aside at this stage.

Host: However, it is not until recently that China has returned to work. To what extent has work resumed?

David: A company called China AMC issued a report, showing that the overall resumption of work has reached 89% in China. For listed companies this figure is close to 100%. For SMEs and privately held businesses, the percentage would undoubtedly be a bit lower. However, work has resumed to varying forms. Some have fully resumed working in office, some require employees to work from home, and some are working with flexible hours, in order to avoid forming clusters during the peak hours of commuting. It also varies between industries, such as manufacturing, where in some places workers aren’t able to go to work due to access issues. In some others, such as the service industry, consulting work can be done remotely. However, this may not work for the catering industry.

Nonetheless, the industries are gradually recovering. China has employed many indicators to measure work resumption, including the volume of coal use, passenger load in public transport, people travelling by air, road and railway and foot traffic in malls; all indicative of work resumption. It can also be substantially demonstrated by parcel delivery, internet usage, power usage and many other aspects. A report has recently been released in Shanghai based on electricity consumption where close to 85% of office work has resumed; roughly 70-80% in the medical sector (since some medical workers are deployed to fight the pandemic); 85% in shopping malls; a smaller 60-70 % in hospitality and catering, where there is still some challenges; and 80-85% in commercial buildings, i.e., an uptick in power usage in office buildings. This shows recovery is underway.

Host: What about logistics and supply chains?

David: Since the Chinese government wishes to stabilise its domestic economy, and therefore pays particular attention to logistics and supply chains, they will take whatever measures necessary to keep the supply chain unhindered. For example, now all highways, including tollways, are free. It is expected that this measure will continue until the end of June, in an attempt to support the transport of cargos. On carrying capacity arrangements, anything related to medical and pandemic control equipment such as masks, preventive clothing and sanitisers – among others – will be given priority for transportation.

Host: We understand that Australia and China have introduced their own respective financial measures, and the current business environment is different from the past. Given the mutual dependence and reliance at this stage, have any new business opportunities been created?

David: As I said, “crisis” implies both “danger” and “opportunities”. There are naturally new business opportunities. A lot of restaurants are affected in eat-in terms, but have more take-away business, which has increased by 20% to 40%. This has greatly increased the use of containers, such as plastic boxes and styrofoam boxes. These are not environmental friendly. So if Australian companies are able to provide environmental technology, they will have a great opportunity in single-use disposable food containers. Next is online shopping.

The shutdowns and social distancing required in many locations have encouraged people to shop more online, resulting in an increase in online shopping volume. What opportunities does this bring to Australian? If Australian companies are able to take advantage of this momentum in the way of shopping and promote their products to the Chinese market, they will have a great number of opportunities. There are over 1.4 billion mobile phones in China now, which means there are many people shopping over the phone. However, Australian companies have still needed to consider which platform to use, and which KOLs (key opinion leaders) to choose, to help them. Even if you manage to sell a product, how will you deliver it? This will require logistics and storage arrangements, and after-sales services. These, of course, need to be considered. Since lifestyle or the way of shopping has changed, Australian companies are given new opportunities.

Thirdly, online shopping has, in turn, bridged the gap between countries. While talking about selling our products to China, have we thought of the other way around? That Australian companies can help some Chinese brands in entering into Australia? This is also an opportunity. China is manufacturing a lot of products for different foreign brands. For example, if we go to the supermarket, we will find Made-in-China products on all shelves. By Made-in-China, however, it usually means OEM, where the foreign company provides their design and specifications for the Chinese manufacturer to make, assemble and affix the foreign label to the finished product. Actually, Chinese entities are able to independently manufacture some products, such as food and fashion. We may consider whether some Chinese products can be made to Western flavours, which, in fact, is feasible. The Australians of course have Australian flavours, seasoning and herbs. Is it possible for some of the herbs and spices to be made in China, and then exported with a Chinese brand? This is virtually achievable in China, but of course we need to ensure food quality, hygiene and safety. If the same level of safety and quality is achieved, why not use their own brands to market in Australia? Take garments and fashions for example. Many branded products are made in China. Is China able to design garments by themselves catered for the Western taste? China actually has the capability to do these kinds of designs now, but has not made them for the global market.

Host: With so many opportunities before us, is there any hindrance?

David: This will depend on when the traffic ban will be completely lifted. No one knows at this stage. Business dealings always require interpersonal communications and delivery of goods. On interpersonal communications, if people cannot sit down together and talk face-to-face, the communication will be less effective. By my own observations over the last few months, I have found that online conferencing software is able to handle 50% of the work, but the remaining 50% really needs face-to-face discussions. On the other hand, if borders are not reopened, cargos may not arrive on time. I heard that the recent cut in air traffic – such as the cut on Hong Kong-Melbourne and Hong Kong-Sydney flights to just one per day – has resulted in many cargos (which would have otherwise been carried by these passenger flights) could not be delivered in time. Even for the few that were shipped out – as I understand from my discussions with a few logistics operators – were charged 3-4 times higher than before the pandemic.

Host: This has inevitably raised the cost.

David: Yes. This has made export less desirable in some cases.

Host: Right. Then all we can do is wait until the pandemic passes. Big thanks to Mr David Chu Head of International Business of ShineWing Australia who is currently on a business trip in Hong Kong, for sharing with us the resumption of work in China as well as the trade relationship between Australia and China. Thank you!

David: Thank you Thomas! Thanks everybody!

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

The post Opportunities between Australia and China in the midst of the pandemic appeared first on SW Accountants & Advisors.