Labor's proposed franking credit changes

[Junior]

As advised by Shorten, 75% of your gain on shares and property is to be put in your tax return. Tax is to be paid at your marginal rate. Currently it is 50%. Yes it is halving the current discount. Yes, it is increasing the current tax by 50%. Actually, being an accountant, 100% of the gain is put in your tax return, then reduced by 25% in your tax return, if you have held for 12 months, to be totally specific. The point is that most ordinary people don't even know is that 75% of any gains will have to go in your tax return. I have a son who just started at a financial planning firm. I suggested he explain this to all clients.

I have asked thousands of ordinary people and they don't know 75% of gains will be taxed. Your salary is taxed each week at your marginal rates. So any capital gains will be taxed at your marginal rates, just like your salary. However, share and property gains will be added to your salary so will be taxed at your highest individual rate. This is quite a scary tax and the incentive to invest in shares and property will go down dramatically.

Also negative gearing on shares and property will be quarantined until you make the final gain on sale. In shares case, this is when your margin loan interest is greater than your dividend income. According to Shorten, you will definately make a final gain on sale. The hide of the man to assume this. Read the mantra https://www.alp.org.au/negativegearing. Shorten says "any losses can be offset against the final gain on sale" Shorten says that only Anaesthetists and Finance managers are the only people negative gearing. Definately not nurses or hairdressers. Please everyone read the policy.

Most people have no understanding of the current CGT rules, let alone the proposed changes!

I'm firmly opposed to the CGT changes....it pays no respect to the impact of inflation. For example, if you purchase a property and hold it for 10 years, and were then to pay tax on the profits, what if the value only grew in line with CPI? So you are being taxed on the fact that you have held an asset which has NOT grown in value in REAL terms at all?

There should be a substantial discount to account for this fact, and to encourage individuals to invest in Growth assets, such as shares and property, and only pay substantial tax IF the asset grew above the rate of inflation.

 

[Knobby22]

So if they remove the franking credits, from the "normal" self funded retiree and they are forced to spend down their balance much quicker. There will be a lot less intergenerational money transfer, from parents to children.
Then if they increase the CGT on profits by 25% and reduce the negative gearing on investment loans.
How do you plan to create your nest egg?
That is of course, unless a person is on a public service indexed pension, which is another taxpayer rort.
a bit like silly Billy, who wont need franking credits, because he will be on a $200k+ tax free indexed tax funded pension as soon as he leaves parliament. But that's fair, of course it is, he can poke his finger at the little guy.

Those defined benefit public servant schemes ended in 2005. It was a good lurk though. I'm not a public servant. (I think judges and politicians still get it though.)
https://www.smh.com.au/public-service/public-servants-are-super-losers-expert-20170626-gwym7m.html

The CGT increase does make it harder. You need to put it in your spouses name or look at how it's held.
I'm not for increasing taxes and Labor better give us lower personal tax rates also, this will mean the capital gains tax increase will be in effect a bit less. the Libs have been effectively increasing taxes due to bracket creep.
Labor do have a problem with collecting taxes and spending it on toy projects. If they do this they will lose the following election.
I suppose I am saying everyone should pay their fair share of taxes but money should not be wasted.

 

[sptrawler]

The CGT increase does make it harder. You need to put it in your spouses name or look at how it's held.

That wont work, if your spouse is a stay at home mum.

I'm not for increasing taxes and Labor better give us lower personal tax rates also, this will mean the capital gains tax increase will be in effect a bit less. the Libs have been effectively increasing taxes due to bracket creep.

The bracket creep has been there with all Governments, it only changes when tax brackets are moved, so it isn't party specific.

Labor do have a problem with collecting taxes and spending it on toy projects. If they do this they will lose the following election.
I suppose I am saying everyone should pay their fair share of taxes but money should not be wasted.

If they bring in the changes they are recommending, it will bring about a whole new paradigm, that will change working peoples life's more than they realise.IMO
Australia has a problem, with no one wanting to collect the rubbish, labor will fix it.

 

[sptrawler]

There should be a substantial discount to account for this fact, and to encourage individuals to invest in Growth assets, such as shares and property, and only pay substantial tax IF the asset grew above the rate of inflation.

Why would 'Joe average' invest at all, if the new CGT, NGT and franking changes come in?

For one they are foregoing lifestyle now, to invest for a 'possible' future gain, if they are fortunate enough to get a gain.
If they are looking at wage replacement income, shares return about 4.2% average, that is hardly better than inflation and inflation is at all time lows.
Under the current rules, there is an incentive to invest, the changes take away all the incentives making it not worth the risk involved. IMO

Is there any wonder Royal Carribean, are putting on extra cruises, next year everyone is on a spend up.

 

[willy1111]

Why would 'Joe average' invest at all, if the new CGT, NGT and franking changes come in?

For one they are foregoing lifestyle now, to invest for a 'possible' future gain, if they are fortunate enough to get a gain.
If they are looking at wage replacement income, shares return about 4.2% average, that is hardly better than inflation and inflation is at all time lows.
Under the current rules, there is an incentive to invest, the changes take away all the incentives making it not worth the risk involved. IMO

Is there any wonder Royal Carribean, are putting on extra cruises, next year everyone is on a spend up.

This is why Homer.

The income and capital grow over time better than most alternatives. The impact of compounding over many years can be truly remarkable. From what I understand the above ignores franking credits anyway.

 

[sptrawler]

View attachment 93126

This is why Homer.

The income and capital grow over time better than most alternatives. The impact of compounding over many years can be truly remarkable. From what I understand the above ignores franking credits anyway.

But does it include holding costs?
If you bought an investment property in Perth 10 years ago, you in reality have no growth, yet you will have incurred holding costs.
Currently that holding cost has had a tax offset, that could change.
Even by your graph the last 10 years has shown a return to cost, and that doesn't include the current downturn.
It might not include franking credits, but it probably doesn't include CGT either, so if the gain from 2008 upto 2016 is realised, 75% of the gain over the cost base will be taxable.

 

[PZ99]

But does it include holding costs?
If you bought an investment property in Perth 10 years ago, you in reality have no growth, yet you will have incurred holding costs.
Currently that holding cost has had a tax offset, that could change.
Even by your graph the last 10 years has shown a return to cost, and that doesn't include the current downturn.
It might not include franking credits, but it probably doesn't include CGT either, so if the gain from 2008 upto 2016 is realised, 75% of the gain over the cost base will be taxable.

I think the graph is referring to shares rather than property

 

[sptrawler]

I think the graph is referring to shares rather than property

From my understanding, the CGT on shares will increase, the same as with property.

 

[PZ99]

From my understanding, the CGT on shares will increase, the same as with property.

There's no CGT if you don't sell shares. And outside of ETF's I'm not aware of holding costs?

 

[sptrawler]

There's no CGT if you don't sell shares. And outside of ETF's I'm not aware of holding costs?

If you don't sell the shares, then in reality you haven't made the compounding effect, so the chart becomes pointless. It is just a mathematical wank, the compounding effect of Telstra 2, is nothing like the chart. As the chart for AMP would not be, the chart is actually a reflection of best case scenario, which most think is achievable.
Unfortunately it isn't untill the end, that one can look back and see reality.

 

[PZ99]

If you don't sell the shares, then in reality you haven't made the compounding effect, so the chart becomes pointless. It is just a mathematical wank, the compounding effect of Telstra 2, is nothing like the chart. As the chart for AMP would not be, the chart is actually a reflection of best case scenario, which most think is achievable.
Unfortunately it isn't untill the end, that you one look back and see reality.

I've been holding ANZ bank shares since 2001. They are nothing like that chart either - but they pay all my bills and more. And they sure as hell return a lot more than 4.2% p/a.

And the GFC was a much harder axe to bear than the CGT / NGT / Franking policies will be.
If you look at the long term as that chart does it's not a reason to give up investing IMO.

Within ten years and another ten prime ministers the policies will all be rolled back anyway

 

[Value Collector]

I agree, double taxation is wrong.
In this case its no taxation. the company pays 30% and the shareholders get it back in full, if they have no earnings or within super.

They only get a refund if they are in a low marginal tax bracket, and shouldn’t be paying tax.

In that situation it doesn’t matter if they were earning dividends, bank interest or driving Uber, it would be tax free anyway.

But what his new proposed legislation is saying is that bank interest, rental property income, Uber driving etc etc all qualify for the marginal tax rates rates of less than 30%, however if the money is earned under a company structure the lowest rate of tax is now 30% is going to be applied even on he first $19,000 which is tax free everywhere else.

 

[Joe Blow]

I have been contacted by a concerned ASF member about the content contained in the website linked to in the first post in this thread, specifically that the website is highly politicised and largely inaccurate.

I have now edited the thread title to more accurately reflect its content and have moved it to a more appropriate forum.

Regarding the content of the website, my first suggestion is that any incorrect or misleading information should be pointed out and corrected in this thread. It is not against the rules to post political propaganda here at ASF. If it was, I'd be banning a lot of people.

However, incorrect or misleading information should never go unchallenged. So I urge those who take issue with information contained on that website to list any false or misleading information here and correct it for the benefit of those reading, now and in the future.

This particular policy of Labor's will clearly be a hot button issue at the upcoming Federal election, so it is one that should be discussed openly and vigorously.

 

[sptrawler]

I've been holding ANZ bank shares since 2001. They are nothing like that chart either - but they pay all my bills and more. And they sure as hell return a lot more than 4.2% p/a.

That statements is somewhat like the chart, if you had purchased T2 in 1999 for $7.40 and were now getting a dividend of 16c what's that about 2% and a share price of -50%, I doubt you would be paying your bills if you were relying on them.
It just shows how outcomes can be very much different, for similar investments, many mum and dad investors bought into T2 and probably still hold.

 

[Value Collector]

Most people have no understanding of the current CGT rules, let alone the proposed changes!

I'm firmly opposed to the CGT changes....it pays no respect to the impact of inflation. For example, if you purchase a property and hold it for 10 years, and were then to pay tax on the profits, what if the value only grew in line with CPI? So you are being taxed on the fact that you have held an asset which has NOT grown in value in REAL terms at all?

There should be a substantial discount to account for this fact, and to encourage individuals to invest in Growth assets, such as shares and property, and only pay substantial tax IF the asset grew above the rate of inflation.

CGT is often double taxation

The capital gains we see on shares is often the result of the company retaining after tax earnings, so the capital gains tax can be double taxation, hence the discount of 50%.

Eg.

You buy XYZ company for $10 per share.

Over the next 12 months they earn $1.00 and and are charged $0.30 in company tax, leaving $0.70 in the company.

This extra equity built up in the company causes their share price to rise to $10.70.

If you sell you are charged capital gains tax on this additional $0.70, but that is actually double taxation, because you have already paid tax on that $0.70 (that used to be $1)

 

[PZ99]

That statements is somewhat like the chart, if you had purchased T2 in 1999 for $7.40 and were now getting a dividend of 16c what's that about 2% and a share price of -50%, I doubt you would be paying your bills if you were relying on them.
It just shows how outcomes can be very much different, for similar investments, many mum and dad investors bought into T2 and probably still hold.

Fair enough and that's unfortunate. I did consider T2 and was advised against it

 

[Smurf1976]

8,100,000 is the total number of individuals on a low tax rate, who could theoretically buy shares and claim a small tax refund, if they chose to. The number who actually employ that strategy is a small minority of that number.

The number affected does not in any way change whether something is wrong or right.

Most people do not get murdered, die in a plane crash or be sexually abused as children but that doesn’t mean we should turn a blind eye to such things on the basis that only small numbers of people are affected.

Likewise saying that only x number of genuinely low income people find themselves disadvantaged by this policy doesn’t mean it’s not a problem.

Add those few to all the other things in recent years, under both main political parties, which only affect some small group and collectively it’s actually a substantial chunk of the population being targeted over one thing or another. That alone is reason to be concerned.

 

[sptrawler]

Fair enough and that's unfortunate. I did consider T2 and was advised against it

I don't have any TlS, but I know many who did buy back then, and are still holding today.
Like I've said on numerous occasions, all these changes should be staged, many people are going to have a lifetimes worth of saving shot to crap.
It really is callous, yet many don't see it and are the same people that profess empathy for others. Weird IMO

 

[Smurf1976]

Arguments for and against this policy as such aside, a major concern is that static accounting seems to have been applied in calculating its revenue effects.

That will almost certainly be wrong, likely very much so, in practice since the nature of taxes is that people seek to avoid them and in the case of this one there are certainly options for many people to do so.

 

[sptrawler]

Arguments for and against this policy as such aside, a major concern is that static accounting seems to have been applied in calculating its revenue effects.

That will almost certainly be wrong, likely very much so, in practice since the nature of taxes is that people seek to avoid them and in the case of this one there are certainly options for many people to do so.

Most I know who are self funded retirees, are quickly trying to lower their assetts to access a part pension. I find it a bit sad, because they are people who have saved and been frugal, to stay self funded.
It really is dumb policy.
It wouldn't be difficult to design the tax, so that it only affected the 'rich', but that obviously isn't the target group.