The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: bigchrisb on May 09, 2017, 07:40:19 PM
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Hi Aussies,
Any thoughts on the Australian budget from last night? A couple of ways that its shaping my thinking:
1. Medicare levy increasing to 2.5%. This means that once earning over $37k, marginal tax rates are 35%. The small company tax bill that has been passed cuts company tax to 27.5%, and its been legislated to taper to 25% by the mid 2020's. That means that for compounding investing earnings, the difference between a low earner and a company is 35% vs 25%. So, in a company, you are retaining 15.3% more earnings. This reinforces my desire to invest non-super stashes in a trust with a company beneficiary. It also increases the incentive to use a DRP in a trust, rather than a BSP in an individual name.
2. Both sides of politics have it in for large cap Australian companies at the moment. Bringing in additional taxes on your largest tax paying businesses only encourages shifting earnings out of those companies. See the example from media - large tax costs for traditional media, almost zero on new media. Good reasons to have some international diversification as a hedge.
3. The screws are tightening on residential real estate investing. Will be interesting to see how that plays out. I see few drivers to drive further capital gains, which has been the main driver of Australian resi real estate for some time now. I'm not unhappy having limited exposure to this sector.
My main action out of this has been to re-run the payback time for selling old stocks in my own name, paying the CGT, and reinvesting in the trust. Stocks with even 50-100% unrealized capital gains are sitting on a 3-5 year payback - hence I'm going to do a bit of this in the new financial year, and unwind the stocks where I have been using BSPs.
Any other observations from the MMM community? Any other actionable insights?
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Slugging "the banks" because they make money.... Slugging bank shareholders they mean, a bank as a corporate entity doesn't care. The banks will just shift the charges to their customers anyway and the pollies know it, but then they can say "bad banks". Gutless wonders.
At least I'll be retired and not on the top marginal rate when the medicare levy goes up (again!).
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1. Medicare levy increasing to 2.5%. This means that once earning over $37k, marginal tax rates are 35%. The small company tax bill that has been passed cuts company tax to 27.5%, and its been legislated to taper to 25% by the mid 2020's. That means that for compounding investing earnings, the difference between a low earner and a company is 35% vs 25%. So, in a company, you are retaining 15.3% more earnings. This reinforces my desire to invest non-super stashes in a trust with a company beneficiary. It also increases the incentive to use a DRP in a trust, rather than a BSP in an individual name.
Reduction in the tax rate only applies to trading companies that carry on business. 'Bucket' companies receiving passive income such as trust distribution will continue to have a corporate tax rate of 30% regardless of the turnover.
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Hmmm, looking at the ATO webpage, you may be on to something. However, there is a range of conflicting information out there on the topic. Looks like I'll need to run it past the accountant.
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Would someone help me to understand the $15k for new home owners? So, this is on top of the $25k you can put in super after 1 July 2017 or included? What happens if you withdrawal but don't use for a house? Could anyone use this to get $30k out of super before they are of age?
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Would someone help me to understand the $15k for new home owners? So, this is on top of the $25k you can put in super after 1 July 2017 or included? What happens if you withdrawal but don't use for a house? Could anyone use this to get $30k out of super before they are of age?
$15K (or any amount you choose to save per year up to $15K limit) will be included in the $25K concessional contribution cap. Since it is a voluntary before-tax super contribution you will need to arrange with your employer to salary sacrifice super contributions, or claim the super contributions as a tax deduction in your income tax return.
Presumably, there will be some check in place to ensure the individual actually uses the withdrawn savings for a home purchase.
More details about the scheme:
https://www.superguide.com.au/boost-your-superannuation/first-home-super-saver-scheme (https://www.superguide.com.au/boost-your-superannuation/first-home-super-saver-scheme)
There is a decent savings estimator provided by the government that calculates the savings under the scheme:
http://budget.gov.au/estimator/ (http://budget.gov.au/estimator/)
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Point 3. Should really remove the 50% CGT on REI.
Saw the removal of the travel reimbursement for IP - so no more trips to Gold Coast/Cairns/Port Douglas IPs for pollies...
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Thanks O.K!
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I don't think it's bad to increase taxes on valuable things like Medicare, but it's terrible to lower the taxes on businesses. Trickle-down Turnbullshit at its best, and we'll all be poorer for it.
The First Home scheme also stinks. You can't address housing unaffordability by increasing the amount of money that buyers are able to spend on houses, because house prices will just increase by an amount that corresponds to the benefit (this is assuming that the scheme actually attracts people to use it). I'm now concerned that my normal salary sacrifice payments into super don't get confused with First Home salary sacrifices into super, because I want my super funds invested in the market, not tied to a lowish fixed rate.
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I'm now concerned that my normal salary sacrifice payments into super don't get confused with First Home salary sacrifices into super, because I want my super funds invested in the market, not tied to a lowish fixed rate.
It won't be confused. The money isn't paid into a separate account; it all goes into the one super pot. And earns the same investment returns.
But the government (specifically the ATO which will be responsible for the scheme) will use a formula for 'guessing' the interest earned on deposit savings (they call it 'deeming'). It is currently set at 3% plus the current bank bill rate (1.78%) making a total of 4.78%. Which is not how much is actually earned on deposit savings, just what the ATO deem will be earned. So if the market crashes and the super balance takes a hit the ATO will still deem that the deposit savings increased by 4.78%, and a person will be allowed to take it all out.
If investment returns exceed 4.78%, the excess will stay in super. If they don't or if the market crashes, the first home savers will essentially be dipping into their long-term savings.
And then of course there is an exit tax (30% below the marginal tax rate) when the savings are taken out of super.
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Thanks for the explanation, OK, it makes much more sense that way.
It makes me wonder - if this scheme gets passed, and if I'm still salary sacrificing in the future when it is introduced, then I'll be earning the ability to take out up to $30k x the deemed rate (after a small tax bill) for a house deposit in the future, even if I don't have the intention of saving for a house deposit in the first place?