Political campaigning is in full force around the country as the federal election approaches on Saturday 18th May.
There’s a little more talk of the economy at this election than others in the past. And many of us may worry about the financial impact of party policies should either party win.
But before you make any changes to your investments or financial structure, remember this: staying level-headed now and refraining from brash decisions is important for two simple reasons;
a) we don’t know who’s going to win;
b) we don’t know if what they’re proposing will be passed through legislation
There’s a ton of media coverage on the election campaign right now; some factual and others obscured by personal opinion or the latest election antic. So we’ve decided to take a look at the election promises and provide an overview on the two major party’s policy proposals from a financial lens.
Franking credit refunds
Companies pay tax on dividends paid out to shareholders. To avoid a double taxation, shareholders receive franking credits. Franking credits offset the tax you would need to pay on dividends, as they are already paid for by the company. If you have more franking credits than the amount of tax you need to pay, you receive a cash refund of the difference. Labor wants this cash refund to end.
Exemptions to this include those receiving an Age Pension, part-pension or allowance. For these people, they will continue to receive these cash refunds. Also exempt are SMSFs with at least one recipient who is receiving an Age Pension or allowance at the date of Labor’s announcement on 28th March 2018.
Labor plans to increase taxes for people earning more than $180k through a 2% levy. This would apply until 2022-23 when the Labor government expects the national budget to be back in surplus.
Trusts are used by individuals and businesses for many reasons including asset protection and tax reduction. Labor wants to introduce a 30% minimum tax rate on discretionary trust distributions to beneficiaries over the age of 18.
Negative Gearing & CGT Arrangements
At present, investors are able to claim a tax deduction from any losses on their investment property. Labor wants this to only apply for newly built houses and for it to be removed on any future investments on housing already built.
In addition, Labor wants to halve the Capital Gains Tax discount from 50% to 25% for all assets purchased after 1 January 2020.
Labor wants to lower the annual after-tax contributions cap from $100k to $75k. It also wants to lower high-income super contribution tax threshold to $200k.
In addition to this, Labor wants to remove the carry-forward provision for before-tax contributions. For those who need a refresher, the carry-forward provision allows you to rollover any unused annual contribution amounts up to the cap onto the following year for a total of 5 years.
Tax-Deductible Accountant Fees
Labor plans to introduce a $3k cap on tax deductible fees from accountants.
Increase Number of SMSF Members
The limit on the number of members in a Self-Managed Super Fund is currently four and Liberal has been pushing to increase this to six. Earlier in April this year, the government had agreed to remove this amendment of increasing the number of members, but it now looks to be pushed ahead as an election policy for the Liberal party.
Raising ‘Work Test’ Age
Liberals propose to change the ‘work test’ age. Currently, older people who work need at least 40 hours of gainful employment within a 30-day period to be able to make voluntary contributions into their super fund. Liberals want to remove this requirement for people aged 65 or 66 from 1 July 2020.
Liberal’s refusal to ban SMSF borrowing was further confirmed after a report from the Council of Financial Regulators and Australian Tax Office was released in March, which raised concerns on risks to a single high asset concentration in property investments due to market.
The government said it was not an issue of concern for SMSFs and borrowing should be allowed to continue.
Liberal is promising to keep the policies that it has already put in place. In the last week before the election, there’s bound to be pop-up policies like the 5% deposit for new homeowners. Whether the banks will support this, is another question.
Make your vote count, including all your preference votes, which will be equally important to determining who gains control of this country.
We will be keeping a close eye on policy announcements and will be in contact if you need to take action.
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Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online.