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Why Australia's resources boom – and property investment opportunities in resources areas – are nowhere near over

Thursday, October 04, 2012

Why Australia's resources boom – and property investment opportunities in resources areas – are nowhere near over: Terry Ryder

 

By Terry Ryder 
Wednesday, 08 August 2012

Three things are fundamentally wrong with the idea that the resources boom will end soon. 

One is the notion that the party stops when the construction of a mine or processing facility is completed – when, in reality, that’s when it begins. 

Another is the false premise that few new projects will be constructed beyond 2014, a claim that suggests people haven’t done their homework before indulging their addiction to media profile. 

And a third is a misunderstanding of the processes under way in China, India and other nations undergoing industrialisation and urbanisation. 

That misunderstanding has lead many to describe what’s happening in the resources sector as a “boom”. That’s a misnomer because a boom is a short sharp rise followed by rapid decline. 

The demand for Australian resources results from significant structural change in the world economy, inspired in part by the emergence of new economic power nations which are seeking to lift the living standards of very large populations. 

This is not a process to be measured in years. It will extend over decades. Property analyst Simon Pressley, recently named Australia’s Buyers’ Agent of the Year, calls it the “resources revolution”. 

High ongoing demand for our resources will continue beyond my lifetime, notwithstanding the likelihood of a few jitters along the way. Australia is going to play a primary role in servicing global demand for ore, coal and gas. 

The belief that the “boom” ends when construction of new mines and processing plants is completed is just bizarre. As Pressley pointed out in one of his Propertyology reports recently, this in fact is when it begins. 

Australia currently has massive new projects under construction, with iron ore projects, coal mines and gas processing hubs, along with associated infrastructure like export facilities and rail links. But the nation doesn’t earn any export dollars until these projects are completed. 

It’s only when they start shipping ore and coal and liquefied natural gas (LNG) that the dollars start to flow. And all the mega projects have proceeded with all or most of their future production under forward sales contracts. 

The third fault line running through the “the boom is ending” argument is the erroneous notion that nothing will happen in Australia once the current crop of projects is completed. The proponents of this idea need to catch up on their reading – or get out of their offices and visit a few coalfaces. 

Most of the big resources projects around Australia are yet to start construction or are just starting to crank up building work. There is so much more to come. 

There have been dozens of major announcements over the past month or so, coinciding with those silly predictions that it’s all grinding to a halt. Here are just some of those relating to Queensland alone: 

Queensland coal production is expected to more than double in the next eight years. In the same period Australia is expected to become the world's largest gas exporter. A report from the Bureau of Resources and Energy Economics says Australia's LNG exports could grow to 106 million tonnes by 2020. The report's long-term projections also suggest big increases in exports of thermal coal and metallurgical coal. 

The $23 billion Australia Pacific LNG project based in Gladstone is to be expanded. Origin Energy, ConocoPhillips and Sinopec have decided to add a second stage, having secured a 20-year supply contract with Japanese power company Kansai. 

A coal seam gas (CSG) project in central Queensland is a step closer towards production, with the state government issuing terms of reference for an environmental impact statement. Arrow Energy's Bowen Gas Project is one of two CSG developments that will form part of the company's LNG project. Arrow will develop up to 7,000 gas wells over the next 40 years, each with a lifespan of 15 to 20 years. CSG will be transported from the Surat and Bowen basins to be liquefied at an LNG plant at Gladstone.

The $1.1 billion Fisherman's Landing LNG project in central Queensland is going ahead, after Melbourne-based Molopo sold its Queensland CSG assets to PetroChina. The Chinese group will now begin talks with LNG Limited, which is behind an LNG plant at Gladstone, over a tolling agreement for gas from the Molopo acreage to be processed to be in the plant. Fisherman's Landing is the smallest of the five LNG plants under construction or planned for development around Gladstone.

Yarwun 2, the $2.4 billion expansion of Rio Tinto Alcan's Yarwun Alumina refinery, passed a major landmark recently when the first bauxite was fed into the new facility and Yarwun 2 began producing alumina. Eventually the plant will produce 3.4 million tonnes each year, compared with the current capacity of 1.4 million.

Xstrata has agreed to a $110 million pre-commitment for an expansion of the $2.5 billion Wiggins Island Coal Export Terminal at Gladstone, boosting the chances that the expanded port and the associated $1 billion Surat Basin rail project will begin exporting by 2016.

Stanmore Coal will bring 750 jobs to the Toowoomba and Surat Basin regions when it develops a Wandoan mine worth $380 million. Construction will begin in early 2014. The environmental impact statement for the mine says it could be operating and exporting before the end of 2015. 

Mt Isa City Council has started the process to freeing up land for developers to build a new suburb of about 400 homes. The council feels the expansion of the resources sector in the area makes existing housing supply insufficient to meet coming demand. 

We’ve also had major announcement of developments in Western Australia, South Australia, Victoria, New South Wales and the Northern Territory. Space doesn’t allow me to list them all.

2012 Tax Changes - Fuel changes

Saturday, July 28, 2012

Fuel changes

There will be some key changes to fuel tax credits from July 2012. The following rate changes will be affected:

  • Liquid fuels, including diesel, petrol or fuel oil used in some off-road activities
  • The introduction of a carbon charge
  • Heavy vehicles travelling on a public road
  • Gaseous fuels
  • And some blended liquid fuels

When calculating fuel tax credits, you’ll need to use the rate applied when you acquired the fuel.

For more details on fuel tax credits for fuel acquired from July, you’ll need to check out this table here.

2012 Tax Changes - The loss carry back

Saturday, July 28, 2012

The loss carry-back

The loss carry-back scheme is one of the most anticipated tax changes by SMEs – one of few.

At the moment, businesses can only carry losses forward to offset future income and profits. They can’t carry their current loss back and offset it against past profits.

But under the new scheme, businesses will be able to claim losses of up to $1 million against tax paid in the past two years.

To be eligible, a business needs to have made a profit and then a loss from July 1, 2012. So while that provides some relief for SMEs, it doesn’t mean anything for businesses that have made a loss in the past few years.

Of course, there are a few caveats – businesses structured as partnerships, sole traders and trusts are ineligible.

2012 Tax Changes - Carbon Tax

Saturday, July 28, 2012

Carbon tax assistance – individuals

This is a huge area of tax change, so we’ll break it down into two categories – individuals, and then businesses.

Most of the assistance is taken care of with the adjusted tax brackets, and they’ll mostly help lower-income earners. But there will be some changes to the way pensions and the Family Tax benefits are handed out.

For instance, pensioner payments have already started arriving, equating to $250 for singles and $380 for couples. After July, pensioners will start receiving supplements worth a 1.7% increase in the maximum pension rate.

Family Tax Benefit A recipients will receive up to $110 extra per child, while those receiving Family Tax Benefit B will get up to $59. Single parents will receive up to $234, as well.

2012 Tax Changes - new Tax Brackets

Saturday, July 28, 2012

Brand new tax brackets – including carbon tax assistance

As part of the government’s introduction of the carbon tax, there’ll be some dramatic changes to the income tax rates – including the adjustment of the tax-free threshold to $18,200 from the current level of $6,000. That means you’ll be able to earn up to $20,542 before any tax is payable at all.

These changes are crucial for employers. Next year, your staff will have less tax withheld from their paychecks, so you’ll need to make the necessary changes to ensure they’re being paid correctly.

Here are the tax brackets for the 2011-12 year, followed by the new tax brackets, which will take effect from the 2012-13 year.

2011-12:

  • $0 - $6,000 = Nil
  • $6,001 - $37,000 = 15c for every $1 over $6,000
  • $37,001 - $80,000 = $4,650 plus 30c for every $1 over $37,000
  • $80,001 - $180,000 = $17,550 plus 37c for every $1 over $80,000
  • $180,001 and over = $54,550 plus 45c for every $1 over $180,000

2012-13:

  • $0 - $18,201 = Nil
  • $18,201 - $37,000 = 19c for each $1 over $18,200
  • $37,001 - $80,000 = $3,572 plus 32.5c for every $1 over $37,000
  • $80,001 - $180,000 = $17,547 plus 37c for every $1 over $80,000
  • $180,001 and over = $54,547 plus 45c for each $1 over $180,000

At the same time, the maximum value of the low-income tax offset reduces from $1,500 to $445, and after that, will be reduced by 1.5 cents in every dollar over $37,000. Previously, that number was at $30,000. From 2015, that figure will be reduced to just $300.

The pensioner tax offset will merge with the new senior Australians tax offset. Meanwhile, there have also been some changes to the Medicare levy and Medicare levy surcharge thresholds.

From July 1, the Medicare levy surcharge thresholds will be changed, while the low-income thresholds will be changed as well. The full details of those changes are available on the Australian Tax Office’s website here.

2012 Tax Changes you need to know about

Saturday, July 28, 2012

The end of the flood levy

You may remember the huge debate last year over the Federal Government’s flood levy, which was introduced to help the Commonwealth pay for the damages caused by the Queensland floods. From July 2012, the levy will no longer apply.

2012 Tax Changes you need to know about

Saturday, July 28, 2012

The end of the flood levy

You may remember the huge debate last year over the Federal Government’s flood levy, which was introduced to help the Commonwealth pay for the damages caused by the Queensland floods. From July 2012, the levy will no longer apply.

Year End Tax Tips for Property Investors

Friday, June 29, 2012

Year End Tax Tips for Property Investors

n  Documentation – when it doubt – keep the record anyway so your Accountant can claim it if possible.

n  Depreciation – Have you got a depreciation report for every property?  If not, get one.  It is free cash in your pocket.  We use a company that guarantees more cash to you than the report costs

n  Travel – ATO accepts 4 trips per year to the property and maybe more if justified.  Keep travel expenses and diaries.

n   Interest Expenses  - Learn how to maximise tax deductible debt and minimise non tax deductible debt

n  Pre-Pay Expenses – interest & other expenses can be pre-paid 12 months in advance

n   Manage Capital Gains & Losses – if you are selling a property speak to your Accountant first.  An Accountant experienced in CGT can save you hundreds of thousands of dollars by correctly planning Capital Gain

n   Manage Capital Losses – if you are selling an Asset for a Gain are these any Assets you can also sell for a loss to help you minimise the gain?

n   PAYG Variation – get it done now ready for next year. Extra cash in your pocket per fortnight.

Little known Tax Tip for Year End Planning for Business

Friday, June 29, 2012

Little known Tax Tip for Year End Planning for Business

 Increased Instant Asset Write-Off Threshold for business starting July.  Assets costing under $6,500 will be able to be claimed outright rather than depreciated.  This is up from the existing $1000 rule.  So you may want to delay any large purchases till next week. 

Year End Tax Tips for Property Investors

Friday, June 29, 2012

Year End Tax Tips for Property Investors

n  Documentation – when it doubt – keep the record anyway so your Accountant can claim it if possible.

n  Depreciation – Have you got a depreciation report for every property?  If not, get one.  It is free cash in your pocket.  We use a company that guarantees more cash to you than the report costs

n  Travel – ATO accepts 4 trips per year to the property and maybe more if justified.  Keep travel expenses and diaries.

n   Interest Expenses  - Learn how to maximise tax deductible debt and minimise non tax deductible debt

n  Pre-Pay Expenses – interest & other expenses can be pre-paid 12 months in advance

n   Manage Capital Gains & Losses – if you are selling a property speak to your Accountant first.  An Accountant experienced in CGT can save you hundreds of thousands of dollars by correctly planning Capital Gain

n   Manage Capital Losses – if you are selling an Asset for a Gain are these any Assets you can also sell for a loss to help you minimise the gain?

n   PAYG Variation – get it done now ready for next year. Extra cash in your pocket per fortnight.


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