Well, not all is lost. The Australian Taxation Office requires that you have to pay tax on any capital gain (or claim a capital loss) on what you make when you sell shares or you give them away. It is critical that you provide this information in your taxation return – otherwise you are effectively avoiding tax. Of course, why data sharing services haven’t been introduced into the ATO so this information can be automatically extracted is beyond me – so for now, it is up to you to record this information.

What records do you need?

So the records that the ATO generally requires to work out your Capital Gains Tax (CGT) when you dispose of shares or give them away is the information that is given to you by the company that issued you the shares, your stockbroker or some online trading facility that you transacted over. It really is critical to keep this information handy and not to store it away and forget about it. The most important records to have include:

• date of sale
• date of purchase
• any broker or commission paid
• amount paid for purchase
• stamp duty paid
• amount received on sale

For advanced share trading instruments – you might even need more information:

• options information – the date & amount of calls
• whether the shares were partly or fully paid
• dividend reinvestment information
• margin lending implications
• superannuation
• merger and acquisition information

The list goes on for more advanced share trading instruments – but most of you will fall into the first category. By law, all information related to CGT events should be kept for at least 5 years after the related CGT event – this is primarily required incase the taxation office decides to audit you. In this event, your will need to recall this information and prove to the taxation office the relevant claims under you tax filing.

I’ve lost my records … ?

So it’s its all great to say what you should have done! Now let’s look to reality. If you have lost any of the above records (simple trading only) then you really need to be able to get this information since it is required by law for a CGT event. The best place to start is:

1. The Companies Share Registry – You need to really get the volume of shares and pricing information as a priority. If your shares are held by a company register – then you need to check with this company and see the amount of shares disposed. Computer Share is the most used vehicle in Australia for this and can typically, at a minimum, provide share volume information.

2. Stockbroker or Investment Guru – This is the next port of call if you cant get the information. If you have a regular stockbroker or investment guru – chances are you don’t even need to worry about this as they should be doing this for you. Just ring them and ask for the related information.

3. Bank Statements - This is an often forgotten gem. Most online banking systems now days provide around 2-3 years data – so you should, at the very least be able to figure out the date of sale – which can then lead you to establishing the amount deposited into your accounts and being able to use reverse logic to establish the amount of shares sold.

4. Online Data – Yahoo & Google Finance are great tools for showing historical share trading data. You might be able to get onto these services and access pricing information for historical sale transactions.

5. Online Stock Broker – Yep, if you are using one of these services you are laughing. All your share trading information is easily stored in these services and you can quickly print off the required information.

The key information in my mind is:

1. The date of the transaction & the sale price

2. Any parties involved in the transaction

3. The relevant CGT amount (i.e. the amount received)

If you get this information at the very least, if all else fails, you tax accountant will should be able to manage.

Prevention Methods

Some of the best ways to avoid losing share trading information in my mind include:

1. Excel Spreadsheet – Setup an Excel Spread Sheet and store this either on your home PC or – even better – store it online in a free email account or backup storage hosting service. Each time you dispose of shares, record this information inside this and resend it to yourself. This way – if you PC dies, you loose the hard copies – you can quickly access this information from anyway.

2. Scanning Documents – Scan the trading information provided by your broker into your PC – and, as suggested above, store it online in a free email account or backup storage hosting service. Each time you dispose of shares, scan this information onto your PC send it to yourself. This way – if you PC dies, you loose the hard copies – you can quickly access this information from anyway.

3. Dedicated Share Folder – Have a dedicated folder just for share trading information … it sound simple, rarely happens and is probably not the best method in this day and age.

Conclusion

Keeping this information handy often a pain – but can have serious consequences if you loose it. The beauty of online services now is that it makes it really simple to store this information online, so you can access it from anywhere at anytime.

Overview

This budget is all about spending, and spending big. The Governments position on this is that it needs to spend in order to reduce the levels of unemployment across our country and sustain economic growth in the short-term. The Government has proposed around $22 Billion to be spent per:

• $3.4 Billion on roads
• $4.6 Billion on rail
• $3.5 Billion on clean energy
• $3.2 Billion on hospitals
• $2.6 Billion on Universities
• $4.7 Billion on Broadband

The so called – big ticket items – were the significant increase in the aged pension , the tax cuts which were delivered and a new carers payment scheme which was introduced in addition to a paid parental leave scheme. Of course, this was negated by increased taxation on superannuation and a tightening of rules associated with superannuation for higher income earners, increased means testing for middle income earners and the dreaded increase in the pension qualifying age to 67 – ouch. These measures are meant to increase our GDP (Gross Domestic Product) by around 0.75% – or approximately $6 Billion – and lower our unemployment by 1.5% for the 2010 year. The Government has contended that without these measures we would be pushing 10% unemployment.

The Debt

Of course, with all this spending comes the bad news. The Governments deficit will expand to a whopping $57 Billion and will not be eliminated – apparently – until 2015/16. This is based on some highly, highly dubious figures released by the Government of a 4.5% rebound in the economy per annum after the global downturn recovers and remain that way for a number of years. In the last 30 years, we have only had 5 years where the GDP of our country has grown at rates similar to those flagged by the Government and so to suggest that the Governments deficit will rebound by 2015/16 seems highly unlikely – particularly on the basis that we would need around 5 years of consecutive years at this level.

The short-term forecasts seem to be in line with most accepted trending regarding near-term forecasts and are more realistic. Why the Government didn’t just come out with more realistic figures than those proposed – I have no idea – but one assumes to ‘fluff up’ the numbers a bit for their political interests as opposed to tangible reality. While I do by no means suggest that the spending the Government is proposing is not needed, I am just slightly confused as to why the Government doesn’t just provide more quantitative growth figures and sustainable repayments of debt calculations – but read this now – there is no way the proposed debt will be repaid by 2015/16 unless we have record levels of GDP growth for the next 5-6 years after 2010. I will gladly eat my hat if this does happen … and my pants too.

To balance the view, I also think that everyone needs to put Australia in stead with the rest of the world. Our net position will increase significantly but in comparison to other nations around the world – we are very well off. Our debt will peak at 13.8% of GDP in 2013/14 which is significantly lower than many other first world countries in the current recessionary period. My concern is the simply unrealistic medium term policies outlined by the Government to repay the sums of debt they are talking about at a sustainable level. Evidently, whether it is this Government or another – more aggressive fiscal and monetary policies will be need in order to realistically reduce debt levels to those proposed.

The Global Recovery

The Governments forecast for unemployment rises to a maximum of 8.25% by mid 2010 before falling from this point onwards in line with the proposed recovery of the world’s economies and GDP growth onwards after this point. This does seem to be slightly conservative from other industry related reports I have read which seem to flag unemployment reaching slightly higher levels and being sustained into 2011. A very fat dark cloud remains over what will happen post-2011 and from all indications revealed by the Government – Australia will have the best 5-6 years of modern times once the economy has recovered. The current value of the Future Fund is %58.1 Billion as at 31 March 2009 and has fallen by 9.6% over the last 9 months in 2008-09 – another point of concern to watch.

In my mind, it really was reckless of the Government to suggest such figures since it just inflames the political rhetoric between the both parties – instead of focusing on the real issues which affect everyday Australia’s. More importantly, it seems that no one is really fooled by the publishing of unrealistic growth figures and they are discarded by the public anyway – so one has to wonder – why include them?

Financial Markets

The Australian Financial markets seem to react relatively positive to the budget – with the 3-yr and 10-yr bond futures moving higher by around 7 points in the first 30 minutes of trading. This infers that most people were probably surprised that the debt levels were not higher considering the leak that occurred earlier last week. The AUD is currently trading around the 0.76 USD market – which is still quite strong.

Conclusion

While the budget seems to be fairly balanced given the times, the Governments unrealistic assumptions regarding growth seem to cast a shadow over its credibility. Most forecasts predict a very weak and sub par recovery in 2010, and no real rebound until 2011 when the economy will move towards more positive trending. This is based on a number of current factors such as weaker exports, general business sentiment and the overall global economic downturn recovery process simply not being able to respond faster than this. The US and European markets have to recovery and rebound before Australia begins to have more positive trending, and despite our shield from China – it can simply not sustain our entire economy and boost it significantly to the levels the Government is predicting.

As a consequence, this will continue to depress the labour markets in Australia all the way up to the end of 2010 and maybe even into 2011 – I can simply not see any real recovery before this, which seems to be in line with other industry reports and general market sentiment. The RBA’s position, from everything I have read from the reports it has released, seem to reflect genuine concern for the market and I envisage it will continue to stimulate the economy. However, of future concern is that if the Government does continue a stimulatory fiscal policy position into the future once a global recovery rebound occurs – then this is the point to watch for tightening from the RBA to curb any inflationary pressures which will start to appear again in the market.

Perhaps this is a necessary budget – spend now, but pay much more later to save jobs – and really regardless of whether a Labour or Liberal Government was in power – both would be spending in order to ensure job security remains high. The question of course relates to the policies being introduced and the level of spending in the short-to-medium term combined with the debt stragities adopted by the current Government – are they sound? One surely casts doubts on a positive answer to this question. This really is a budget that has some flavour but a lot of unrealistic postulations about the future economic rebound of both our country and the world – of course, this couldn’t be because we have an election year next year could it ? Ah, politics never ceases to amaze me.

Agree with me ? Disagree ? Drop a comment below.

Interestingly – ‘long term credit ratings’ – probably would have rated Lehman Brothers up there … and we all know what happened to them …

Check out this list after the jump!

1. KfW (Germany)
2. Caisse des Depots et Consignations (CDC) (France)
3. Bank Nederlands Gemeenten (BNG) (Netherlands)
4. Landwirtschaftliche Rentenbank (Germany)
5. Rabobank (Netherlands)
6. LandeskreditbankBaden-Wuerttemberg-Foe rderbank (Germany)
7. NR W. Bank (Germany)
8. BNP Paribas (France)
9. Banco Santander (Spain)
10. Royal Bank of Canada (Canada)
11. National Australia Bank (Australia)
12. Commonwealth Bank of Australia (Australia)
13. Banco Bilbao Vizcaya Argentaria (BBVA) (Spain)
14. Toronto-Dominion Bank (Canada)
15. Australia & New Zealand Banking Group (Australia)
16. Westpac Banking Corporation (Australia)
17. Banco Espanolde Credito S.A. (Banesto) (Spain)
18. ASB Bank Limited (New Zealand)
19. HSBC (United Kingdom)
20. Credit Agricole (France)
21. Wells Fargo (United States)
22. Nordea Bank (Sweden)
23. Scotiabank (Canada)
24. La Caixa (Spain)
26. US Bancorp (United States)
27. Banco Popular Espanol (Spain)
28. DBS Bank (Singapore)
29. Pohjola Bank (Finland)
30. Deutsche Bank (Germany)
31. Société Générale (France)
32. Intesa Sanpaolo (Italy)
33. Bank of Montreal (Canada)
34. DnB NOR Bank (Norway)
35. The Bank of New York Mellon (United States)
36. Caixa Geral de Depositos (Portugal)
37. United Overseas Bank (Singapore)
38. OCBC (Singapore)
39. Axa Bank Europe (Belgium)
40. Credit Suisse Group (Switzerland)
41. LandesbankBaden-Wuerttemberg (Germany)
42. Nationwide Building Society (United Kingdom)
43. CIBC (Canada)
44. National Bank Of Kuwait (Kuwait)
45. Barclays (United Kingdom)
46. UBS (Switzerland)
47. JPMorgan Chase (United States)
48. Bank of Tokyo-Mitsubishi UFJ (Japan)
49. Banque Federative du Credit Mutuel (BFCM) (France)
50. Credit Industriel et Commercial (CIC) (France)

• World economy has remained very weak following decreases in demand late last year
• Conditions in global credit markets have improved since November last year, but remain fraigle
• Demand has not weakend as much as in other countries and Australia has not experienced the sort large contractions seen elsewhere.
• Inflation is likely to decline over time.
• Overally, economy is not slowing significantly and therefore no need for a cut unless some event indicates it.

Thanks Glenn – ummm just to point out that overnight the Dow Jones Industrial Average (DJI) fell around 299.64 points overnight or around 4.2%. The S&P500 (GSPC) was equally slammed falling by 34.27 points or 4.7% to around 700.82 points and the Nasdaq (NASDAQ) also shed 54.99 points or 4% to finish at 1,322.85. Most of this bad news was on the back of the announcement by American International Group (AIG) that it posted a fourth quarter loss of around a $61.66 billion USD loss or around $22.95 USD per shore – much worse than the $5.29 billion loss in the fourth quarter last year when market proponents assumed the market was at its lowest point. This meant that the full year 2008 results for AIG were a reported loss of $99.3 billion USD or a whopping $37.84 USD per share.

Iconically, this is really an unprecedented fall and has never been seen in the history of the world and to put it in perspective – Australia’s total GDP is around $1 Trillion – so this is approximately about 1/10th of our entire countries GDP loss in one organisation. Surprisingly, the RBA should have really dropped interest rates on the back of this news and other continued severe credit-market deterioration, particularly in commercial backed mortgages in the United States, but they have decided against it – perhaps to keep interest rates cuts up their sleeve for the future and to wait for more economic data.

So what is all this going to mean ?

Well, I would think that things have still some time to go yet before we hit the bottom.

There tends to be a lagging effect on numbers vs. the “real” society impact when huge losses are posted, companies take these losses in real terms and then restructure their business and retire existing staff. The global recession is having a tremendous impact on credit and this is causing serious volatility in the market as investors attempt to determine which industries are being hardest hit and which companies are the next to post huge losses. The sheer volume of money that has been lost is going to continue to hammer employment markets in addition to wage growth as companies bottom lines erode and profitability just deteriorates in line with this. 

While the RBA and the Government are attempting to keep the economy rolling along with billions of dollars of capital injections, reducing interest rates and guaranteeing deposits - I am not convinced that its going to make consumers spend. Debt is at an all time and its a fantastic time to get rid of that debt cheaply and easily. In my mind, racking up huge purchases on credit cards in ‘uncertain’ and ‘unstable’ times is really just foolish and not a prudent use of a persons income generation. Debt reduction should be the key focus for households and once the market has finally bottomed out – many individuals can turn back to the market to ride the boom upwards and capitalise on the bull run that the market will take.

For now, I would say ‘Batten down the hatches’ as more jobs and more economic announcements are going to continue. 2008 was perhaps the worst ‘unknown’ financial year in the worlds history and the effects are going to continue for some time yet. If you think about it rationally, it is just not possible to loss that much money around the world and not feel the effects for some time afterwards. Don’t fool yourself into thinking that everything is going to be fine – consolidate your finances, reduce your debt while you can or use cheap debt to capitalise on expansions to your home to improve its value in the future (when you can use the equity in your home to finance investments) and wait for the market to bottom out.

• Trade-off Theory – The Trade-off Theory is a theory which suggests that companies have an optimal capital structure based on a trade-off between the benefits and the costs of using debt. 
• Pecking Order Theory – The Pecking Order Theory – or the ‘Capital Shuffle’ as I call it – suggests that companies always follow a hierarchical pattern in financing sources such that internal funds are always preferred to external ones and borrowing is preferred to issuing risky securities. This theory is based on information asymmetry whereby all relevant information is not known by all parties interested in knowing it. Information asymmetry is the battle ground for most fundamental investors as it is involves the discrepancy between what insiders of a company know (managers) versus what those external to the company do (such as shareholders and lenders).

Trade-off Theory

The trade-off theory really emphasis the effects of taxes and the costs of financial distress in engaging in high leverage finance. This theory suggests that companies should borrow until the marginal tax advantage of additional debt is offset by the increase in present value of the expect costs of financial distress. Many opponents to the trade-off theory question how the theory actually explains capital structure decisions because there are many cases where corporate leveraging is much lower than what the trade-off theory suggests. Such opponents argue that many multi-national companies with high profit margins have operated for an extended period of time with low debt ratios and achieved solid credit ratings. Trade-off theory would suggest that these same companies could achieve significant interest tax savings by increasing their debt ratios without any remote possibility of financial distress becoming an issue.

Evidently, there are large bodies of evidence to suggest the opposite is also true and that trade-off theory is entirely useful. Trade-off theory can explain most of the differences in capital structure that exist between competing industries in stances where leveraging is low when business risk is high and when most of companies assets are intangible in nature. However, while trade-off theory does really take a common sense approach to capital structure there are many things it cannot explain. Some of these include:

• the conservative nature of companies when utilising debt finance
• why leverage is negatively related to profitability
• why leverage is so consistent across most countries despite huge variances in their taxation systems

Pecking Order Theory

The Pecking Order Theory is a popular capital structure theory which usually explains why internal finance is much more popular than external finance and why debt is classified as the most attractive external finance option. The theory basically suggests that companies with high profitability may use less debt than other companies because they have less need to raise funds externally and because debt is the ‘cheapest’ and most ‘attractive’ external option when compared to other methods of capital raising.

Conclusion

Both of these methods have there advantages and their disadvantages when examining the structures of capital financing. There are an abundant number of issues which must be explored and there are numerous texts available on this branch of finance. The most important aspect is to understand the different structures of capital financing so that it is possible to estimate the future profitability of a company and also the managements strategies in raising differing forms of finance. Information asymmetry does imply that ‘insiders’ will always have a greater knowledge bucket in comparison to external investors of a company, and therefore examining the different methods of capital structure does help to strike abalance in the vicinity of par towards those external to a company.

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Short selling is effectively – selling what you don’t own – to engage in short selling you need to find a person who owns shares and believes that the share is going to rise. In undertaking short selling, you do think that the price is going to fall. You are effectively “betting against” people who think its going to rise.

The following example should help to illustrate (please note that are differences between naked short selling and covered short selling which are explained in the link at the bottom of this post) :

1. Fred approaches his stock broker and says “I want to short sell NAB at current market rate of $20″
2. The stock broker would approach a large investor who has gone “long” on NAB shares and thinks they are going to rise (i.e. the large investor holds a bunch of NAB shares and thinks that they are going to rise)
3. The stock broker effectively “borrows” these shares from this investor and sells them at the current market rate – deriving a cash sum. The broker is now indebted to the investor for X  number of shares and holds cash for Fred.
4. The stock then falls to $18 and Fred wants to cash out and tells his broker.
5. The broker then uses the money from the sale of the shares “borrowed” from the large investor, and buys them at a rate of $18.
6. This costs $18 per share and the stock broker then gives the large investor the number of shares borrowed.
7. Fred has made $2 and pays a premium to the stock broker, who would have in turn been charged a premium from the large investor.

So a proper illustrate in a practical sense:

1. Fred “borrows” 1000 shares at $20 and immediately sells them at market price earning $20,000
2. Stock falls to $18
3. Fred buys 1000 shares at $18K
4. Fred “returns” the “borrowed” shares to the “borrower”
5. Fred keeps $2K profit
6. Fred’s $2K has a “premium borrowing” charge of 10% – so he has to pay this for “borrowing” the shares – $200 to the company.
7. Fred Nets $2K – $200 = $1,800

Obviously, you have to find an investor who is willing to “lend” the shares. Most big investors buy shares to go “long” not short – so many are “hesitant” to do this. However, the reason they do is that you have to pay a “premium” for “borrowing the shares”. Of course, the rationale is that big investors are in for the “long haul” and short selling is really just to gain from “short term” news. To learn more about short selling and the current affects on the ASX – read this article.

Of course my advice has always been not to reduce your fortnightly interest repayments. Keep them at your current level and you will slash off around 5 years over the course of your home loan. Less on interest, more in your pocket.

Yep, this is the simplest recommendation that anyone can provide when interest rates decrease – don’t go out and spend this interest rate differential – “force save it” by keeping your homeloan and/or other loan repayments high. The higher the better really.

The other massive news today was that the Rudd Government is putting an extra $42 Billion into the economy – dubbed the “2nd Stimulus Package”. This means that most people will get another $950 “bonus payment” in March 2009 if you earn less than $100K. Personally, I completely disagree with lump sum payments by the Government – they do not work. In this economy, people are not going out to spend this additional cash like the Government wants them too – times are tough, the job market is shrinking which means that Australian deposits are increasing as people become resistant to overspending. I think that most people are going to save this money, put it directly on the home loan repayments or reduce their debt (i.e. such as credit cards or other miscellaneous debt).

A more effective distribution of money to Australians in this earnings bracket is via a staged approach that limits the payments that are provided to Australians. “Bulk Payments” didn’t work in December 2008 – with Australian Bureau of Statistics providing data which suggests most people used the December payment on savings or reducing existing debt. Of course, everyone loves a bulk payment – I just don’t think its going to provide the “kick start injection” that the Government thinks it is going to.

My thoughts on this payment is to save this money and use it as a liquidity buffer so you can draw on cash if you need – don’t spend it. Pay off existing debt and pretend that the payment was just a “bonus” that you needed to reduce debt. The more you can reduce your debt in these times the better.

Other highlights of the day include:

• Total government stimulus now at $88.7 Billion.
• Injection of the “2nd Package” is $42 Billion.
• New Package should support 90K of jobs.
• Government will ease discretionary spending to 2% to reduce the overall interest payments.
• Budget deficit will hit $22.5 Billion for the year to June 30.
• Low and Middle Income earners to receive another $950 from the ATO.

Drop a comment on your thoughts below.

• Ellen J. Kullman, Chief Executive Officer, DuPont, USA
• Rupert Murdoch, Chairman and Chief Executive Officer, News Corporation, USA; Co-Chair of the World Economic Forum Annual Meeting 2009
• Duncan Niederauer, Chief Executive Officer, NYSE Euronext, USA
• David M. Rubenstein, Co-Founder and Managing Director, Carlyle Group, USA
• Ronald A. Williams, Chairman and Chief Executive Officer, Aetna, USA
• Moderated by Michael E. Porter, Bishop William Lawrence University Professor, Harvard Business School, USA

Some great points come out of their discussion regarding the state of the United States economy including – in brief summary – the following points:

• The panelists comment on the need to create new innovation in energy. Interestingly, they point out the correlation between high fuel costs and the spur for new innovation during the periods of increasing world oil prices but then as oil prices fall – this “urgency” for new innovation in energy subsides as oil falls. This time around, everyone on the panel indicated that lower fuel prices must not mean that innovation stops – all agreed that this time around it must continue.
• Increase the level of education at a junior level – a smarter population means that innovative solutions can be presented to problems that seem unsolvable. 
• Increase the level of consumer confidence by ensuring that the level of communication between the Presidential Office and the people in America and around the rest of the world is consistently transparent.
• Don’t rush solutions in the first 100 days but rather use the 1440 days remaining in office to fix so many of the issues – time is of the essence but it’s important to note that time is available.
• Tax gasoline usage in order to reduce the amount of corporate taxation in the United States so businesses remain in the US and don’t move offshore.

There are a lot of other point worth watching in the video so check it out below and get the rest of your people in the office and/or work place to listen.

Personally, it seems that so many sites comment on the market generally so I thought I would go down the road of providing educational resources and general trading tips – but please let me know if you want a specific article typed up and I’ll get onto it!

Send me your idea’s via a comment in this post or through the contact page.