A quick summary of what the Federal election means for some key policies
- For property investors, negative gearing remains unchanged so losses continue to be offset against other income.
- For self-funded retirees (and some others with low taxable income) – excess franking credits remain refundable where no personal income tax is payable.
- For small business / families – no new 30% tax on discretionary trust distributions.
- For Superannuation – the non- concessional contribution cap remains at $100,000 per year remains instead of Labor’s proposed $75,000 pa and the ability to make additional contributions using the catch up of unused amounts under the super cap during the previous 5 years continues to be available.
The Federal election impact on Australian Shares
The Australian share market has reached an 11 year high following a post-Federal election rally, particularly in banking stocks and health insurers. The following commentary by fund manager Pendal sums it up well.
“The Federal election result has come as a surprise. Almost without exception, every company we speak to was expecting a Labor win.
The market is likely to enjoy a near-term relief rally as the uncertainty around the effect of Labor policies on the market disappears.
We note offshore investors had taken a very cautious view on Bill Shorten. His party’s failure may prompt some flows from international investors.
There are some sectors which will enjoy obvious relief.
The threat of a bank levy is now gone. So too is the plan to cap private health insurance premiums, removing a headwind for the insurers and the private hospital operators.
We may see some rotation here – perhaps from some of the more defensive sectors where investors were parked ahead of the election.
Second-order effects will take longer to emerge.
There is an argument that the retention of negative gearing may see investors return to the housing market, which may feed through to sustained support or banks and housing stocks.
We remain cautious on this view, particularly on the banks given the multitude of issues they face.
Nevertheless, trends among property investors remain important to watch. There may also be a pick-up in mining developments which could benefit mining services and the economy more broadly.
We have witnessed a marked economic deceleration in recent weeks. A key question is how much of this is due to the “election effect” and how much reflects broader underlying weakness.
This remains a key question in the near term, although speculation that the government might accelerate their tax cuts may provide a boost to economic activity”.
The Coalition wins a third term – your superannuation policy update in preparation for the end of the financial year
After the introduction of the significant legislative changes which came into effect on 1 July 2017, you may be relieved to hear that for at least the next three years we hope to have sustained stability for super. This means that you can focus on managing your financial needs rather than worrying about changing rules.
Before the election, the Coalition did announce tweaks to the superannuation system that we anticipate will be implemented by the Government including:
- Guaranteeing no new taxes on superannuation.
- Greater flexibility for retirement contributions.
- From 1 July 2020, Australians aged 65 and 66 will now be able to make voluntary superannuation contributions, both concessional and non-concessional, without meeting the work test. Previously, this was only available to individuals below 65.
- This also includes extending access to the bring-forward arrangements to individuals aged 65 and 66 which allows individuals to make three years’ worth of non-concessional contributions to their super in a single year.
- Increasing the age limit for individuals to receive spousal contributions from 69 to 74.
- Reducing red tape for superannuation funds — exempt current pension income (ECPI) changes.
- Reducing costs for the super industry by including superannuation release authorities in electronic SuperStream Rollovers.
- The Government will provide $19.3 million over three years beginning in 2020-21 to the Australian Taxation Office (ATO) to send electronic requests to superannuation funds for the release of money required under some superannuation arrangements.
- Retaining limited recourse borrowing arrangements (LRBAs) for SMSF.
- Increasing the maximum number of SMSF members from four to six.
Superannuation changes from 1 July 2019
Superannuation is one of the best ways to grow your wealth, as it provides significant tax concessions which are designed to help you save for retirement. In fact, super now accounts for 17% of household assets1 and this percentage is projected to grow rapidly in the coming decades.
However, on the back of concerns that people’s savings shouldn’t be unnecessarily eroded by fees or inappropriate insurance arrangements, the government has passed several new laws that are set to commence from 1 July 2019.
Here’s a breakdown of the most important changes – and what you can do to prepare for them.
Consolidation of inactive low-balance super accounts
If you have a super account that hasn’t received a contribution or rollover for 16 months and has a balance below $6,000, this is classified as an inactive low-balance account. These accounts will be transferred to the Australian Taxation Office (ATO), which will then attempt to auto-consolidate those funds into an active account linked to you. However, your account will not be considered an inactive low-balance account if:
- you have satisfied an eligible condition of release, such as retirement, or
- during the previous 16 months, you have:
– chosen to maintain insurance cover
- – changed investment options
- – made changes to your insurance cover
- – made or amended a binding beneficiary nomination, or
- – made a written election to the ATO that you’re not an inactive member.
- We can explain more about the benefits of consolidating super accounts or take you through the steps required to keep it ‘active’.
Cancellation of insurance in inactive super accounts
Accounts that have remained inactive for 16 months or more will have their insurance switched off unless you let your fund know (by making a valid election) that you want to keep your insurance cover. An inactive account for this purpose is one where no contribution or rollover has been received for 16 months or more. This change is to ensure that inactive accounts won’t be eroded by insurance premiums. This is a positive outcome for those who already have insurance in another account, or outside of super.
It’s important to make sure you have enough personal insurance to cover you if something goes wrong. Speak with us to ensure you have the appropriate level of cover.
Abolishment of exit fees
Australians pay on average $68 to leave a super fund2. Under the new rules, all super fund exit fees will be banned, which could be another compelling reason to consolidate your super accounts.
In addition to these super changes, there are some important Centrelink changes that also come into effect on 1 July 2019:
The Work Bonus allows most pensioners who’ve reached age pension age to disregard the first $250 per fortnight of their employment income under Centrelink’s income test. From 1 July, this will increase to $300 per fortnight, which also means the maximum unused fortnightly amounts you can accrue will increase to $7,800 per annum, up from $6,500. So you’ll be able to earn more from work before your pension reduces.
Additionally, from 1 July 2019, the Work Bonus will be extended to include eligible earnings from self-employment.
Assessment of lifetime income streams
Lifetime income streams (such as lifetime and deferred annuities) will be assessed differently under the social security income and assets tests if they are purchased on or after 1 July 2019. If you are considering commencing a lifetime income stream, the choice of whether to purchase it before 1 July, or on or after 1 July, could therefore make a big difference to your level of social security entitlement. Your financial adviser can explain more about the changes and how they could impact your financial situation.
Australia’s Population Growth remains very high
The growth of our population has many implications for areas as diverse as housing, schools, hospitals, transport infrastructure and economic growth. Whether you think it’s a good or bad thing, our population growth is high by historical standards and compared with other developed countries. .id the population experts recently provided the following commentary:
“In March, the Australian Prime Minister announced a trimming of the permanent migration program from the established figure of 190,000 per year to 160,000.
The PM has also proposed to entice migrants to regional areas.
While a population plan is a good idea, this is not much of a plan.
The Australian Overseas migration story in more complex than that what the PM is suggesting. The important roles that temporary migrants play in the Australian economy changes the PM’s picture considerably.
There are the Kiwis and temporary workers and their families who provide important labour resources, the students who drive a multi-billion-dollar education industry, and the backpackers who drive a tourist dollar as well as providing rural labour.
You may think of these people as temporary visitors, but many are counted in our population.
Include these economically important temporary migrants and the net overseas migration (NOM) figure for Australia will remain between 220,000-240,000 places per year.
Now, with the release of the Treasury budget papers Tuesday night, we see the actual net overseas migration figure forecast for 2019 is 271,700 places.
But really, that’s beside the point.
The thing is, trimming of the Permanent Migration program policy will have a negligible impact at the local level. It will not have an impact on school enrolments, crowded public transport or road congestion. Innovative planning and bold investments in infrastructure are required for that”.
This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.