Mclowd Community Newsletter April 2020

Welcome to the Mclowd Community Newsletter.

The Transport Workers Union has cashed in on strong demand for well-located commercial property assets after selling its Sydney head office in Chinatown for $29 million. The deal…was struck on a yield of 3 per cent.”

TWU sells Sydney headquarters on 3% yield, AFR April 8th

Introduction

In order to fund the Federal Government’s current stimulus packages, the Australian Office of Financial Management is expected to issue $60 billion in short-dated securities this quarter.

As of today’s date Bloomberg is quoting bonds maturing in 2022 on a yield of just 22 basis points, reflecting both:

  • Recent falls in the RBA’s cash rate
  • Relentless demand for assets that are less exposed to the extreme levels of volatility to which equity investors are being subjected

As a consequence – and as the TWU transaction illustrates – we are now seeing the yield on all asset classes being driven into low single digits.

The Role of Mark-to-Market Returns

While not professing to be an expert in SMSF accounting, I am nonetheless aware that investment returns are treated on a mark-to-market basis.

While it may seem an esoteric point, it is one which will not be without consequence.

The reason is quite simple: it will take no more than 12-18 months for the decline in yields to begin to show up in the tax returns of self-managed super funds.

Accounting Software Update

While the Mclowd Team comprises product specialists whose role is to define our scheduled targets, we are ultimately Community-driven, with priorities being informed by feedback from active (and prospective) Members.

Speaking of his participation in this process Trustee Mike Brownlow had this to say: “I have been working with the Support and Development Teams for several years and have been pleased with their responsiveness.

While there is still work to be done, as the software has matured their ability to respond to my input has steadily improved.

As was always the intention, this crowdsourced model has now permanently lowered the cost of managing SMSFs for all Members of the Community.”

Conclusion

The ability / willingness to pay for SMSF administration is inevitably correlated with the tax advantages which accrue.

In turn the quantum of those tax advantages is a function of nominal yield.

(At 22 basis points a self-funded retiree – in his or her individual capacity – would need to deploy more than $8 million before the Commissioner of Taxation would even be bothered to ask for a return).

As those yields continue to fall, the structure of the industry will come under increasing pressure, and nowhere more so than with respect to the incumbent software platforms.

For which the globally-defined marginal cost is precisely zero…

Regards

Ashley Porter
Managing Director
Mclowd Pty Ltd

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