Ryan Merrett, CIO, Tribeca Financial
With the Budget being announced on Tuesday, there is a HUGE amount of information out there, with different companies and reporters giving their take on it. I don’t believe a single source has got it ‘right’, as it’s just too hard to cover everything that’s in there. So, we have given a summary of what we believe is important.
At the very bottom is a list of links that go into a lot more detail from other providers.
What is it: Non-Concessional Contribution of up to $300,000 when Downsizing your home.
What it means: From 1 July 2018, people aged 65 and older will be able to make a non-concessional contribution of up to $300k to super after selling their home, in addition to other eligible contributions.
How it may affect you: Us Aussies tend to have a HUGE amount of money tied up in our home. And often it is the Family home. The family home is often bigger than needed, requires ongoing effort to clean, and is worth a lot of money. However, it doesn’t provide an ongoing income, which can put pressure on cashflow.
While downsizing might still reduce a person’s Centrelink benefit, now it at least means more funds can be held in the tax effective super environment. This fixes the second point, ensuring that people can get more of their Net Wealth working for them and producing an income.
This measure may also provide some downward pressure on property prices as it could increase the supply of houses on the market. This will have different effects in different areas though.
First Home Buyers
What is it: First Home Super Saver Scheme allows contributions of $15k p.a. up to $30k in total.
What it means: First Home Buyers can essentially salary sacrifice (pre-tax) into Super, have their money work for them in a low tax environment, and withdraw the money at a later date to pay for the deposit on their home.
Withdrawals of contributions and deemed earnings (currently 4.77%) will be permitted from 1 July 2018, and will be taxed at a lower rate of a person’s Marginal Tax Rate less 30%. The amount is restricted to $15,000 per year per person with a maximum of $30,000 in total per person.
How it may affect you: A decent idea, but there is some complexity around making sure that it works well!
Typically First Home Owners are disengaged with their Super. They might have a few super accounts, and they might not be invested appropriately. It is important to get this sorted out first.
You would hate to put a large amount of your hard earned into your super only to find out you had it in very high risk investments and a dip in share prices might mean you had been doing it for no extra benefit!
The proposal aims to help people build up a sufficient amount to fund their home loan deposit without paying the exorbitant Lenders Mortgage Insurance and taking on too much debt.
What is it: Medicare Levy increasing from 2-2.5%.
How it may affect you: Slightly higher tax.
Small Business Owners
What is it: Decreased tax rate.
How it may affect you: If you own a small business you should benefit from increased cashflow. If you don’t, hopefully this translates into good economic growth and we have a stronger economy.
Property Investors – Extra CGT discount
What is it: 10% extra CGT discount for ‘affordable housing’.
What it means: New tax incentives with an additional 10% capital gains tax discount to increase private investment in affordable housing.
How it may affect you: Honestly, I don’t know about this one. It’s hoping to get more people to invest in building ‘affordable housing’ from a renters point of view, but pushes the COST of housing in these areas up.
It might allow people to get by, but on the face of it, will put owning a property even more out of reach for those that are struggling.
Property Investors – Reduction in deductibility
What is it: Reduction in Deductibility.
What it means: No longer able to claim travel to inspect, maintain, or collect rent. Also to claim Depreciation on the goods, the investor needs to be the one who paid the outlay.
How it may affect you: Typically, not a whole lot. Colloquially, there is a loophole with residential property that has meant that people have been able to claim their travel for their holiday as a tax deduction. However legally, they can’t have stayed in their home anyway.
It DOES suggest that the government is cracking down on tax deductibility and making it less and less easy to decrease your taxable income.
Banks – Extra levy
What is it: Big 4 + Macquarie to be levied .6% on their liabilities.
What it means: The banks will NOT like this. This seems to be something that will promote competition in our financial sector, making it easier for the smaller banks to compete.
If they need to compete, and it’s more difficult to compete on price, then the big banks are going to have to improve – or lose business. Expected to give revenue of $1.5-1.6 Billion p.a.
How it may affect you: Expect the big banks to pass on this levy to consumers!
They aren’t just going to sit there and let their profits get eaten away, and they know that clients in Australia don’t really move that much. Therefore, if big banks are becoming more expensive, be open to spend the 3-5 hours (with help) that it takes to move your loans and your banking accounts to a more suitable provider.
Banks – Accountability
What is it: Bank executives have increased Accountability.
What it means: Long term remuneration incentives are deferred for 4 years and APRA has powers to reference check and monitor staff.
How it may affect you: Not much, other than it could help to reduce unethical and short term decision making. This should be a positive for consumers, but it is unlikely to have a significant effect.