By Steve Luman
No doubt you’re feeling confused and frustrated about the upcoming election’s impact to you and your money.
The 2019 federal election is close at hand and there is an increasing likelihood of a change in government (if the recent news polls are anything to go by). Which means, it’s even more important for you to understand the key differences in the policies of the two major political parties and how some key policies may affect you & your money.
Many of my financial advice clients have been asking me about how the proposed changes may affect them, their investments, their superannuation and tax, and although I will be discussing what we may need to do to review their existing strategies, I’ve decided to write this article for their benefit and that of the wider community who may also be interested to know.
As a husband and father, there are many areas of government policy that concern me but this is not the time or place for a discussion on climate change, meeting target omissions, school funding, hospitals, major project announcements or any other policy (the list goes on…).
My focus here is to highlight the areas that may affect our financial future today and tomorrow.
Take a look at my top 3 policy announcements regarding investments that everyone should look out for:
Note: this overview is based on policies that have been announced as at March 2019 (which have mainly come from the ALP camp).
INVESTMENTS
Negative gearing
The ALP: proposes that negative gearing (with regards to an investment property) be restricted to newly constructed dwellings.
The Coalition: No proposed changes to the current legislation.
Implications:
- The ALP has not proposed to apply this retrospectively, so it won’t affect any investments made prior to when or if this is legislated. They recently announced the proposed changes to negative gearing will commence January 1, 2020;
- You would still be able to deduct the net rental loss (or losses) from your personal income, provided the investment is a newly constructed property; and
- If legislated, any losses from investments (such as shares and existing property) would only be able to be offset against the tax liabilities of the actual investment income (ie. not personal income).
Franking credits
The ALP: proposes that franking credits would no longer be refundable where dividends are received (proposed to commence 30 June 2019).
The Coalition: No proposed changes to the current legislation.
Implications:
- Under the ALP’s proposal franking credits could still be used to offset a tax liability and to reduce tax payable;
- It would not affect recipients of a Centrelink pension or allowance, or members of a SMSF receiving a Centrelink pension or allowance (prior to 28 March 2018, also referred to as the ‘pensioner guarantee’);
- It could have an impact on individuals and SMSFs invested in Australian equities.
Consider a review after policy announcements are confirmed. For point #3 above, individuals affected would mainly be self-funded retirees and low income earners.
CGT discount
The ALP: intends to reduce the capital gains tax (CGT) discount to 25%.
The Coalition: No proposed changes to the current legislation.
The current CGT discount is 50% (after an asset is held for 12 months by an individual or trustee).
Implications:
- This would significantly increase the tax payable for any assets acquired & disposed in future should this be legislated;
- In the case where a client has a dividend reinvestment plan (as part of a portfolio of Australian equities, for example), it may affect the CGT payable on future disposal of the asset(s);
- It would only apply to all future investments and not currently held investments as there is no commencement date and it is not proposed to be applied retrospectively (ie “grandfathered” provisions); and
- No change has been proposed to the CGT discount of 10% currently available to superannuation funds (including SMSFs);
In point #2 above, I will be looking at this more closely however if there is potential impact it would be advisable to seek advice from a registered tax agent to confirm the tax implications (but only after (or if) this has been legislated).
There are other factors to consider however overall this proposal will negatively impact future investors by reducing the CGT discount from 50% to 25%, and in conjunction with the proposed increase in personal tax rates could impact future long term projections of an investment
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NB: This advice is of a general nature only and does not take into account your personal situation and all of your objectives, your financial situation or needs. Before making any decisions you should seek advice from a professional, qualified financial adviser.
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Comments7
"@ Paul M. I am certainly not financially illiterate and I will be voting Labor. They have a long track record of being better economic managers than the LNP. Most of the economic reforms that have benefited most Australians were implemented by Labor. These include the introduction of the CGT, FBT that stopped blatant rorting, floating of the dollar, and cutting tariffs. The LNP has been the economic wrecker, even the head of the RBA criticising Howard for the over-generous long-term middle-class welfare that squandered revenue from the short-term mining boom. Keating stopped double taxing of company profits and Howard foolishly extended it to no tax at all through the combination of removing all tax on superannuation pensions with no limit, and refunding excess franking credits. He also perverted the CGT system. Keating's system only taxed real gains in excess of inflation, meaning if an investment increased with inflation there was no tax. Howard replaced that with a set discount, rewarding short-term speculative gains at the cost of long-term prudent investments. I see that you are repeating the Joe Hockey lie that Keating's changes drove up rents in the 1980s. This has been thoroughly debunked. https://www.abc.net.au/news/2015-05-06/hockey-negative-gearing/6431100 You also seem to have fallen, hook line and sinker, for the Murdoch rhetoric about Labor's stimulus package being mismanagement. The whole economic world disagrees with that assessment. Australia was the only developed country to avoid recession while debt increased less as a proportion of GDP than did Britain's, under a conservative government. Nobel Laureate economist Joe Stiglitz says that the debt would have been higher if Labor had not acted as it did. As the LNP says that it would not have done the same, it is clear that debt would have been higher if they had been in power. Stiglitz also pointed out that average real earnings increased more under the Rudd/Gillard governments than it did during a similar time under Howard. That fact disproves your other claims. https://www.irishtimes.com/business/economy/recession-busting-australia-heading-for-the-buffers-1.3145371 https://theconversation.com/australia-has-done-it-better-17794"
Geoff Trewarn 20:21 on 17 May 19
"@Paul M - Speaking of illiterate, Labor, as in the Australian political party is spelt Labor, not Labour. Ever heard of rent seekers? Look it up numpty."
Dumb 19:29 on 12 Apr 19
"Only the financially illiterate (eg above) will support these policies and therefore Labour at the upcoming election. Profits and money motivate an economy. The Labour party history has always pursued and supported / advocated socialistic views. "The Rich Get Richer etc etc..." and so the everyday working class Australian votes for them - believes them. However, these policies affect middle class Australia the most. The guys that have made an attempt at getting out of the ruts of 'being poor' and invest in capital growth assets to try and better their "lot"! There would be very few Australian's (if any!!!) that would turn their backs on the opportunity to be rich or richer. But because they're currently not in that group, they're an easy target for the Labour party to align to their policies. The most interesting one is the disallowing of negative gearing losses. The ALP have memories shorter than Bill Shorten's IQ. This will prove to be a win for property owners that hang in there! A lot (enough of them) will dump properties like hot potatoes (or just not invest into properties) and there will be a shortage of rental property supply. This will push rents up just like it did in the mid 80's and then lo' and behold the legislation will be removed. Private investment underpins a huge part of the supply model. Labour either have poor memories or are ignorant. The current slump in the property market has been worsened by the outcome of the Banking Royal Commission. Lenders have tighter lending criteria so many first home buyers are not able to buy their home. They're going to need to keep renting. Immigration continues our upward demand for housing. With demand dwindling through tighter financial lending criteria and housing supply not being there due to lower private investment it will not take long before the consequences flow therefrom. This happened in 1987!!! Negative gearing was one means to finance property investment. Soon though higher rents will more than accommodate the loss. Who is going to lose? Labours voter base - without even realising it! It's not often the case that we can say that there's a silver lining to having idiots taking control although the ignorant bleating sheep will know no better until it's too late! "Four legs good ... two legs better" "
Paul M 19:05 on 12 Apr 19
"The ALP is not the investor's friend, this is the clear message for clients regardless of your political persuasion."
Mick Gionfriddo 16:20 on 12 Apr 19
"The Labor platform, surprise surprise, is looking after its mates in industry funds. Labor will reverse the July 17 changes which allowed the claiming of tax deduction for monies paid into super, for risk or investment, by "supported" employees. That will reduce the risk businesses of ALL insurers, particularly the one or two who boast 70% of risk inflows being in super. There is no mention so far of stopping rollovers from existing accumulation to fund risk premiums, but you can bet the ISN will be all over that one as well. So I have Hobson's choice. I can reward the "small business friendly " Coalition who with FASEA and LIF, have ruined about 10,000 risk businesses, while helping the banks. Or I can vote for Labor who has a number of policies I favour, BUT will probably go with an ASIC decision ( telegraphed already) to eliminate life risk commissions entirely, regardless of whether it will bugger the life insurance industry ( 25% reduction in new business so far ) , including super group. Give me strength !!!!!"
Bill Brown 15:37 on 12 Apr 19
"Liberals doing nothing as if everything is fine. Labor trying to reform and make better. Same as it ever is."
Kick this mob out! 14:49 on 12 Apr 19
"Not being reliant on it personally - I think Labors franking credit policy is good and will save the budget bottom line billions per year that they can spend elsewhere. I understand some people have set up their finances to take advantage of the existing policy - but how many people are really effected? And if most people using this framework are asset rich anyway - won't they just be able to re-jig their advice and get income else-where? Seems like it would benefits the country more to save on this revenue. I know it's not the same, but I asked a retired relative if they could spot me $10k for a month or two due to unforeseen circumstances and he said he couldn't loan me anything as he'd lose his old age pension. He currently has a loan for a new winnebago and lives with his wife in a 5 bed house worth about $2 million. And he still gets the pension? I don't really see why they need the pension - even if they are ENTITLED to it? Same goes for these franking credits."
Is it Fair? 14:45 on 12 Apr 19