What does an ALP government mean for individual investors?

Discussion in 'Accounting & Tax' started by Nodrog, 5th Apr, 2019.

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  1. oracle

    oracle Well-Known Member

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    Labor plan to ram through tax changes

    Also read on Financial Review article ALP is planning to combine legislation of higher amount of low to middle income tax offset along with scrapping stage 2 & 3 tax cuts Morrison government.

    So Senators will be asked to vote on an all or nothing proposal.

    Full article here


    Cheers,
    Oracle.
     
  2. marty998

    marty998 Well-Known Member

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    Perhaps the age pension should be reduced then as a disincentive to what your mate is doing.

    Peter Costello mentioned earlier this week on 7:30 that if a retiree on the age pension lives long enough they could draw close to a million dollars from the taxpayer in the base pension + supplements and concessions like the healthcare card. Call it $1.5m for a couple.

    It is neither sustainable nor fair on the younger generation to pay for people who have the means to but make no attempt to look after themselves.
     
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  3. kierank

    kierank Well-Known Member

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    Maybe politicians should more openly acknowledge the contribution self-funded retirees make to the government coffers (by NOT taking the Aged Pension) and not propose/implement policies that screw them. I hope BS + ALP takes note of this.

    That is democracy in action. The Government CANNOT tell its citizens how to spend their money.

    When I was young, I lived a very frugal life and invested my savings into shares and property. At the same time, my family and friends bought expensive cars, went on holidays, lived the high life, ...

    Nothing has changed. Young people are still doing the same things today as they did in the past.

    Now I am a self-funded retiree; my family and friends are living on the Government teat.

    When today’s young reach retirement, some will be self-funded while others will be on the Government teat.

    Nothing will change.
     
  4. oracle

    oracle Well-Known Member

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    Labor facing $6 billion threat to plans from crossbenchers

    Full article here

    Cheers,
    Oracle
     
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  5. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    But Government will make laws to ensure that the impact on Government expenditure through taxes, super laws, private health and age pensions dont advantage the self funded retiree v's those who must rely on social security Social security is meant to be a safety net. Its the role of Government to minimise expenditure. And social security is the largest outgoing with the ageing population putting this at risk.

    Its like suggesting that unemployed people who live off their redundancy funds are saving the budget for benefits they cant access. In reality the system gives them $0 entitlements until they spend their own money. T
     
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  6. Redwing

    Redwing Well-Known Member

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    The fury over Franking Credits 7:30 Report

    Labor's proposed changes to franking credits remain one of the key difference between the two major parties going into this year's election. Labor's changes will strip the right to a tax refund from people who don't pay income tax. But many voters are angry because they say the policy unfairly hits those with self managed super funds while those in industry and retail funds won't be affected.

    Self-funded retirees could earn less than age pension

    Labor’s policy to end cash refunds for franking credits is a contentious topic – and for good reason.

    It's a policy that could reduce some retirees’ incomes by up to a third.

    Consider retirees Alan and Bev, both in their 80s. They have a modest home worth $400,000, a 10-year-old car, a caravan and a small amount of cash that they hold for emergencies.

    They have built up a nest egg of about $800,000 in a share portfolio they hold jointly.

    Their assets are too high for them to receive an age pension, so they live off the dividends from the share portfolio of $32,000 a year, and a refund they receive from excess franking credits of $13,000.

    Their total income is $45,000 a year.

    According to the Association of Superannuation Funds of Australia, the required annual income for a modest retirement is $39,775 and a comfortable retirement requires $60,977.

    While Alan and Bev aren’t living much more than a modest lifestyle on $45,000 a year, they feel like they are good with their money but need to keep a close eye on their expenses.

    However, Alan and Bev will end up with less than the full age pension if Labor’s policy to end franking credit refunds is enacted.

    It would remove their refund of $13,000 from franking credits and leave them with just $32,000 a year in income – a reduction of 30 per cent.

    Continues...

     
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  7. Redwing

    Redwing Well-Known Member

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    Stephen Koukoulas

    The ABC &:30 franking credit story failed to note that every dollar of refundable franking credits is borrowed by the government. So when people next receive their dividend refund cheque from the government, remember the government has borrowed that money… every cent of it
     
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  8. Tony3008

    Tony3008 Well-Known Member

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    We're meant to feel sorry for them, struggling in their 80s to maintain a modest lifestyle, but surely the whole point of super was meant to be that you built up a pot of money that would keep you through your retirement, drawing it down at a prudent rate (in your 80s you could probably draw down 10% a year with next to no risk of running short). In a case like this, franking credits aren't about supporting them, they're about giving their next of kin a big tax-free (?) handout.
     
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  9. SatayKing

    SatayKing Well-Known Member

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    Hmm, couple in their 80's. $32k in divies (cash not franking) and access to $800k. Life expectancy is? So sell in small lots, allow for CGT, and make up the difference. $20k pa would be say, 40 years?

    As for the ASFA, at one stage it proudly declared it represented not SMSFs but the advisers to such. No conflict of interest there.

    And a small bon mot on how much super a do do. Peter Martin once wrote an article critical of the ASFA's definition of modest retirement income. Sadly I cannot find the link but I did once post it on this forum.

    How much superannuation do I need? - Posts - Martinial
     
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  10. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    In reality few people plan to leave their super to next of kin as tax-free. There are several mistaken beliefs about super

    1. It passes to next of kin according to your will
    2. Its passes to beneficiaries tax free (yes = spouse. Otherwise may not)
    3. That super balances (alone) will fund a retirement into the 80s. In reality the rising draw downs plus additional discretionary additional amounts will usually waste the balance faster than planned

    Even a person aged 60 who draws a minimum pension from their super will deplete the balance with reasonable investment returns. Unless the NET earnings are 4%+ the member balance will shrink since thats the minimum to be drawn. This rises slowly at first and then becomes steeper as the member ages. 2 members doubles the effect. At 80 it could deplete 7% of the fund each year until age 84 and then 9% etc.. And as balances reduce the pension falls so typically to maintain living standards the draw down is increased. Accelerating the decline too. This is an intended effect. Super isnt meant to be for death but to maintain retirement. Its a punt whether the member is in line with actuarial standards or not.

    Key superannuation rates and thresholds
     
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  11. SatayKing

    SatayKing Well-Known Member

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    I guess it's natural to look at the position of others and comment according to our own beliefs. From the example given by @Redwing in the 7:30 report, the couple would be horrified at the thought of selling any of the assets they have worked for. All they can probably see is their income could possibly be reduced by what to them is a substantial amount. I'd likely feel the same way if it were me.

    All my super is back in accumulation as I don't need it by having other income. So I guess some could view me as "over-funded" from a number of aspects. Oh well, if the Gov ain't forcing me to take it out of super may as well sit there.
     
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  12. Nodrog

    Nodrog Well-Known Member

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    There’s only one issue with Labor’s franking credit policy that irks me. It’s not being equally applied to all. Two Super pension members with identical franked assets and equal amounts. Only difference is one invests through their SMSF and the other through an Industry Fund. The SMSF member loses all his / her franking credit refund but the other gets to keep the lot!
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Thats an assumption.

    1. The industry fund may be a pension fund. It may not be refundable. The specifics havent been committed to law
    2. The SMSF may even be eligible. If each member in the SMSF had entitlement to $1 of age pension at the proposed test date (dec 2018 ?) then it may well be refundable to the fund. And if it only meant one member had a $1 entitlement to an eligible aged pension a segregation strategy may overcome the problem.
    3. Rebalancing the fund investments so "untaxed" income is produced may assist. This doesnt mean selling the shares. It means holding other investments that will have tax due. The excess franking credits can offset that first.
    4. A contriibution strategy using adult kids perhaps ? The kids contributions tax would be paid by the franking first. And the respective pension members would get a tax credit where the contributing members would pay tax. Members arent disadvantaged but the tax credits are used.

    The issue of paying 10-15% tax should be the focus rather than the loss of some or all franking. In some cases a change of fund may be prudent but the loss on control and choice may outweigh the tax aspects.

    Investors and markets tend to rebalance when a adverse event occurs. Remember back pre-Costello franking credits were not refundable for years and years.
     
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  14. Nodrog

    Nodrog Well-Known Member

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    Everything’s an assumption at the moment:).
     
  15. Player

    Player Well-Known Member

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    Woeth the modestly self funded SMSF retiree. Changing goal posts on people like this who made decisions about funding their retirement and being no (or low) burden to government welfare liability is unfair.

    What a treasure Chris Bowen will be if/when he is our next treasurer

    Frank(ing) exchange with Bowen: "Is it fair?" - Cuffelinks
     
  16. marmot

    marmot Well-Known Member

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    You mean all those that based their retirement around a little known tax break/incentive that lets lthem get a refund from the taxpayer for a tax that they never paid for.
    They certainly dont want to try and get a government pension , because its means tested and they may not even met the age requirements ..... Yet.
    There no shortage of peaple that took early retirement through SMSF with the full knowledge that it was never going to last , once they hit their mid 60s , they could simply apply for a government pension.
     
  17. oracle

    oracle Well-Known Member

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    Then why does the franking credit first get added to one's taxable income to calculate their marginal tax?

    Everyone is making this only a retiree problem which it is but not the only people impacted.

    Anyone with taxable income of less than $90K and owning fully franked shares would be potentially worse off.

    Cheers,
    Oracle.
     
  18. SatayKing

    SatayKing Well-Known Member

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    Gets slightly confusing doesn't it? I guess there is a tendency to associate our taxable income with a companies income despite being separate entities and subject to different tax rates and arrangements.

    The information may be incorrect but I recall reading an article which indicated a Company is not obliged to issue a franking credit but do it as it doesn't cost them anything and to provide a benefit to some shareholders.

    Anyways I think but stand to be corrected of course, the 30% is prima facie and the Company may not actually remit 30% to the tax office.

    Deeper and deeper into the quagmire we go.
     
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  19. TSK

    TSK Well-Known Member

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  20. Indifference

    Indifference Well-Known Member

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    That's nonsense.... you need to understand that the minimum super draw down rates increase with age..... by 80 yrs old they are 7% not 4%.

    Hence, in your example, they would be drawing 56k before franking..... that's a fact.