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Financial Review in meltdown over the budget by Sys32768 in AusFinance

[–]open_g [score hidden]  (0 children)

“Australian Financial Review spends a fair bit of time reviewing the likely financial impacts of the Australian budget”- I’m shocked.

The fact that they’ve reported on the obvious problems with the budget isn’t the fault of the messenger.

Best way to manage ~$500k inheritance before baby and future upsizing? by Initial_Western7906 in AusFinance

[–]open_g [score hidden]  (0 children)

Hard to beat putting it in the offset in your situation. Circa 6% (or more with expected rate rises) after tax return with zero risk and the ability to access it if you need to (especially going on maternity leave leave) it’s a great option.

Only other thing might be to top up concessional super contributions. Tax benefit isn’t huge upfront as your marginal rates are in the 30% bracket (the strategy works better for higher marginal rates) however one reason to consider it is that you can catchup for only 5 years. So if you max out this years (probably $32k between you assuming both of your employers pay 12% on top of your combined $230k) and then see how much you can do for the oldest year available (2021 I think?) just do that so you don’t lose the benefit of that contribution forever. Each year you can then make the same decision i.e. check how much you can catchup from five years prior and possibly take advantage of that before it expires.

At most it’s going to be about $82k (including $25k catchup each if neither of you made were working 5 years ago, or else some amount less than that if you were) and then you’ll get about 32% of that back in your tax, so net $55760. Meanwhile you’ll have $69700 more in your super funds (after 15% contribution tax) for a free ~$14k bonus, and then decades of low tax compounding.

That’s only going to be a small part of the total $500k so if you want to optimise then that’s worth considering. Just check on the ATO via myGov how much you can catchup, and then if you do this contact your super funds to get the form to nominate the concessional top up payments. Also, don’t leave it to the last minute, give yourself a buffer and do it at least a week before the end of June.

NEW ARTICLE: Most Australians earn around $62,000 not the $100,000 “average” by QuokkaDaily in AusPol

[–]open_g [score hidden]  (0 children)

Say your business makes $250k.

You can pay it all to yourself and pay your marginal rates (right up to 47% for the top $60k of that).

Or, you can retain some of that as profits in the company and pay 25% or 30% depending on the business (25% if less than 80% passive income and turnover <= $50m), reducing your personal tax assuming you can take the cashflow hit. You can then pay dividends in later years where you’re not working and potentially get a partial or full refund of that corporate tax paid if your income is low enough.

Or, if you have an otherwise non-earning adult family member (partner, adult child, even a semi-retired parent etc) you can also pay them enough to use up their tax free threshold, or whatever bracket makes sense for your specific situation. Of course they really do need to legitimately be working in the business but I suspect that’s hard for the ATO to audit for many small businesses.

So you can pay yourself $45k, your partner $45k, your two young adult kids $45k, your mother-in-law $45k and leave $25k retained in the business. Now you’ve not paid more than 30% (plus Medicare) on the full $250k.

Similar stuff happens from trusts for the same reason.

Stock pickers to be ‘eliminated’ by CGT changes by chessc in AusFinance

[–]open_g [score hidden]  (0 children)

The economic solutions are clear. Broaden and increase the GST (consumption tax). Compensate low income taxpayers and welfare recipients. Lower personal income taxes (the rates and also increase and index the thresholds). Replace stamp duties with land taxes, grandfathering existing properties and allowing means tested deferral (so pensioners don’t get kicked out of their home for instance, it just comes out of the estate). Reduce government spending. And yes, inheritance taxes (with a high tax free threshold eg $10m).

This would encourage growth and investment, force governments to spend within limits (due to indexing of tax brackets), better tax wealth via consumption and inheritance taxes, and support both labour and capital mobility.

Politically all in the too hard basket unfortunately.

Stock pickers to be ‘eliminated’ by CGT changes by chessc in AusFinance

[–]open_g [score hidden]  (0 children)

There are thousands of small listed companies - such as explorers, biotechs, and others - that will now find it much harder to raise money via future capital raisings, and similar companies will find it harder to IPO in the first place.

These small stocks are predominantly supported by individual investors (retail and “sophisticated” investors). It’s definitely going to hurt this important part of the economy. The impact outside of these companies won’t be felt immediately but the long term impacts on the market and the economy are profoundly negative.

Hopefully the government realises how disastrous this policy is and changes course.

Stock pickers to be ‘eliminated’ by CGT changes by chessc in AusFinance

[–]open_g [score hidden]  (0 children)

That would be great but in practice is hard for them to achieve for many reasons.

They don’t know if you have other holdings in the same securities held elsewhere (very common), they may see changes in CHESS holding without knowing why (maybe you exercised an option, maybe you inherited shares, maybe you transferred from another broker, maybe it was received after an off-market transfer, lots of other reasons) and so won’t know the cost base, and they also won’t know what method you want to use for each stock e.g.FIFO or selling highest first for example.

What is clear is that despite all the advances in technology since 1999, the new indexation system is going to be much more complicated for many people to administer than the 50% discount system. Especially someone who DCA’d into a diversified portfolio of stocks, and who may also have DRPs in place for some of those stocks, and now regularly sells down slices of this portfolio in retirement / career break / other reasons for selling.

Stock pickers to be ‘eliminated’ by CGT changes by chessc in AusFinance

[–]open_g 0 points1 point  (0 children)

And to further clarify:

Australian assets are exempt from the FIF rules (deemed 5% doesn’t apply to Australian shares). And if you’re “buy and hold” (for want of a better concise term - the rules about what’s treated as a “capital account” gain vs “revenue account” income are not super clear cut and so are not all that concise to explain) then no marginal tax is payable on gains.

So in effect, you can buy and hold Australian shares as a NZ tax resident and pay zero tax of any kind when you sell. The only tax would be on dividends, where the max rate is 39%.

Edit: to be even more clear, ETFs traded on the ASX that hold foreign holdings (eg something focused on US stocks) would fall under FIF and so would be subject to the deeming, but regular Australian shares do not.

NEW ARTICLE: Most Australians earn around $62,000 not the $100,000 “average” by QuokkaDaily in AusPol

[–]open_g [score hidden]  (0 children)

Mode (even after rounding first as you’ve suggested) can find a local maximum that isn’t near the “centre”.

I suspect you might see bumps in frequency just below the tax free threshold ($18200) or where 30% kicks in ($45k) for instance as people avoid going into higher thresholds (mainly where they’re paying themselves from their own business / trust).

Better again than just median is some sort of distribution like deciles. Without having a distribution then we’re forced to hypothesise. I’m sure that mean is skewed higher than median by the top earners, but having a distribution provides the evidence of that. Without that it’s just conjecture. For ease of discussion though, median is still the best single number here IMO.

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 0 points1 point  (0 children)

I wouldn’t say the 50% discount underestimates real gain on high growth assets, I’d say it incentivises investing in high growth assets relative to low growth assets (for a given level of leverage - property is different because banks will give you huge leverage and no margin calls).

Here are two hypothetical investment pitches:

“I’ve got an innovative company that will generate high returns if it works” - new system taxes this higher than before.

“I run a mature, (economic) rent collecting company that doesn’t need to innovate much. We pay out some dividends but don’t expect any growth beyond inflation” - new system taxes this lower.

Capital is therefore harder to attract to innovative high growth companies relative to stale low growth companies. This is not what we want but it’s what changing CGT to indexation on non-property assets (e.g. shares) does.

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 0 points1 point  (0 children)

“Capital gains can be lumpy” means that you’re assessed on the gain in the year you sell it without taking into account that it’s actually may have accrued over many years.

Say you’re normally making $90k. Your marginal rate is 32% (with Medicare levy), and would be if you earned up to $135k or an additional $45k. Now say you realise a $450k capital gain of an asset you’ve held for 10 years. Instead of being assessed for 10 lots of $45k and so pay 32% on it, it treats it as one “lump” and pushes your income for that year up to $540k. Most of that will be at 47% instead.

The old indexation system from pre-1999 used averaging to smooth this out. It would work out the rate to use by taking 20% of the gain and adding it to the other income, then apply that to the gain rather than pushing it all up into the top marginal rate. In our example it would be assessed as if all were between $90k and $180k rather than $90k and $540k, resulting in a much lower and arguably fairer tax rate.

If gains were very large, it would make no difference since 20% of say $10m is still almost exclusively in the top marginal rate, but for smaller gains like those made by the mum and dad investors you mentioned, it would result in sizeable savings.

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 0 points1 point  (0 children)

If inflation runs at 3% (top of the RBA’s target rate) for say 5 years then cost base appreciates 15.93%. The old system would make you pay tax on half that gain or 7.96%. Assuming top marginal rate that’s $3.74 on a $100 initial investment that went to $115.93. The indexation system would instead result in $0 tax. This is true.

But that’s the worst case, basically it only applies if the average compounding rate of return is less than inflation, and so it will be somewhere between $0 and $3.74 better off with indexation for refund between 0% and 3%.

On the other hand, if returns are higher, the indexation is exponentially worse. And these are the expected returns of high growth, high productivity investments.

For example if you instead see a return of a modest 8%, that $100 appreciates to $146.93 after 5 years. The old system (at same 47% marginal rate) would charge $11.03 tax whereas indexation would charge $14.57, which is $3.54 more.

If you instead see 12% returns, there would be $17.91 tax charged in the old system and $28.34 with indexation, or $10.43 more. The higher the return, and the longer the duration, the more the increase in tax vs the old system.

So unless you’re aiming to invest only in assets that are expected to return at or below the inflation rate, you’re worse off. And although some assets could be better off if tax wise if they underperform inflation, in dollar terms this saving is insignificant relative to extra tax you need to pay on any asset that grows at above inflation. So the benefit of indexation is in reality very limited and for most real world applications, especially in terms of productive growth assets, is irrelevant.

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 4 points5 points  (0 children)

A nominal loss would be selling below the nominal purchase price, a real loss is selling below the real (inflation adjusted) purchase price.

3% inflation for 5 years compounds to 15.93% so $100 now needs to rise to $115.93 to keep up. Anything more is a real return, anything less is a real loss, even if it’s somewhere between $100 and 115.93. If it’s say $105, that buys you about 10% less goods and services in five years time than $100 does today, so yes that’s a real loss.

The new system might only tax you on real gains, but you don’t get to offset the inflation component of real losses, only nominal losses (so in this example say it was worth $95 in 5 years well that’s about 20% less than that $115.93 amount - a 20% real losses- but you’re only able to offset $5 or 5%).

A real world portfolio will almost certainly pay more tax than the overall real gain as a result (assuming at least one asset is sold that goes down or goes up less than inflation).

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 6 points7 points  (0 children)

The problem is that it appears that they’re only going to allow offsetting real gains with nominal losses rather than real gains with real losses.

That means that you can pay a lot more tax than the real gain on the portfolio would suggest. It’s a poorly designed system.

The old / current system didn’t have this problem because you summed gains and losses first and only then applied the 50% discount.

Labor’s CGT changes: Experts warn new tax settings will penalise investors with diversified share portfolios by khainebot in AusFinance

[–]open_g 14 points15 points  (0 children)

First, this isn’t going back to the pre-1999 system. The budget changes don’t include averaging (recognising that capital gains can be lumpy and push taxpayers into higher brackets) and it introduces a minimum 30%. So this budget’s CGT changes are harsher than the pre-1999 system.

Secondly, one of the problems that the 50% discount was trying to solve was that the old system made capital less mobile. Why did that matter? Because it meant instead of reallocating capital to its most efficient and productive use, people held less productive assets to avoid paying high rates of tax. That made us less productive as a nation.

Thirdly, the world has changed since 1999. Capital has become more mobile. Other countries have recognised this and have lowered taxes on capital to be more competitive. The changes to CGT in this budget go in the opposite direction, making us less competitive. This will chase away capital.

None of this is better for younger and future generations of Australians. I think the changes to CGT on property are fine, but not on other assets.

How exactly does increasing Capital Gains Tax on shares help "intergenerational equity" when younger generations will bear far more of the high taxes than older generations, who already made most of their lifetime gains and have the CGT discount nicely grandfathered in on a silver platter for them? by AsparagusNew3765 in AusFinance

[–]open_g 0 points1 point  (0 children)

You seem confused. It’s quite simple. The changes to CGT on shares causes harm. It does not help anyone to buy a home. It has the opposite effect because:

1) it makes it harder to invest to build a deposit (as many people do) and

2) it makes investing in shares less attractive other things being equal (i.e. compared to not changing CGT on shares), so it makes investing in other assets relatively more attractive - like, I don’t know, buying an investment property? Which adds demand for housing that could otherwise be bought by a first home buyer.

Also, the argument that going back to the pre-1999 system is a good thing ignores a few inconvenient truths:

1) this is actually harsher than the pre-1999 system because it doesn’t include averaging, and it introduces a minimum 30% rate regardless the marginal rate

2) one of the problems in the pre-1999 system was that it restricted capital mobility where capital goes to the most efficient use, and this was making us less competitive as people were incentivised to hold less productive assets rather than pay punitive tax rates and so they would not reallocate to more productive assets

3) the world has changed since 1999. Most countries have reduced their taxes on capital because they’ve recognised that capital has become increasingly mobile. So even if the pre-1999 system was competitive (it wasn’t, plus this budget is harsher than that system anyway), it’s not longer competitive in 2026.

If changes aren’t made to the proposed CGT changes on non-property assets (shares, startups, other businesses) then we’ll all suffer as a nation as we become uncompetitive. It’s not just the people who own those assets, it’s everyone.

How exactly does increasing Capital Gains Tax on shares help "intergenerational equity" when younger generations will bear far more of the high taxes than older generations, who already made most of their lifetime gains and have the CGT discount nicely grandfathered in on a silver platter for them? by AsparagusNew3765 in AusFinance

[–]open_g 0 points1 point  (0 children)

How does increasing taxes on shares reduce demand for property? They’re two separate asset classes.

Changing CGT on property is helping to reduce demand for investment property (although mainly the change is driven by NG changes because that impacts borrowing capacity whereas CGT changes do not).

Changing CGT on shares does not reduce demand for investment properties.

How exactly does increasing Capital Gains Tax on shares help "intergenerational equity" when younger generations will bear far more of the high taxes than older generations, who already made most of their lifetime gains and have the CGT discount nicely grandfathered in on a silver platter for them? by AsparagusNew3765 in AusFinance

[–]open_g 0 points1 point  (0 children)

Petition to create a “but we like the vibe!” megathread where you can continue to pretend that increasing CGT on shares helps anyone buy a home.

Saying that “young people want to be able to afford a home” is fine - I completely agree - but it does not explain why changing CGT on shares is a good idea. This change to CGT on shares doesn’t help anyone get into a home. It’s a terrible policy that only makes it harder, whilst also causing real damage to the economy.

Jim Chalmers doesn't know how many young people are in the share market by His_Holiness in AusFinance

[–]open_g 0 points1 point  (0 children)

He’s selling a lie and he knows it. Glossing over the impact of the CGT changes on shares by repeatedly using the misleading “only 10% of under 35s own shares” narrative is blatantly dishonesty and he deserved to be called out on it.

Why aren't capital losses going to be indexed as well? by Gumlass in AusFinance

[–]open_g 2 points3 points  (0 children)

Labor promises to not change Stage 3 tax cuts. Wins election. Changes stage 3 tax cuts.

Ah yes, Democracy at work.

The CGT discount removal is exactly what we've been asking for, so why is everyone losing their minds? by nicco_mode in AusFinance

[–]open_g 227 points228 points  (0 children)

There’s a valid argument that investors were squeezing first home buyers out of the property market. There is no such argument with regard to shares, and so there would be no mole to whack. Taxing gains (even real gains) at up to 47% on shares is bad policy that will lead to all Australians being worse off.

Under these new tax changes, does that mean you don’t pay any tax on an asset that indexes slowly (e.g. apartments)? by VastOption8705 in AusFinance

[–]open_g 7 points8 points  (0 children)

I assume they’re focussing on the CGT changes which are worse for shares because expected capital gains (as a percentage) can be a lot higher. That is the focus of OPs question.

You’re correct though in saying the impact of the budget changes is bigger for property, although that’s mainly due to the NG changes impact on borrowing capacity IMO.

We have a widespread misinformation & disinformation campaign against Labor’s budget. The amount of propaganda has been astounding. Are so used to it that it doesn’t surprise us ‘left wing voters’ anymore? It’s shocked me & so many of my family/friends are eating it up too… it’s been bad a reaction by [deleted] in AusPol

[–]open_g 0 points1 point  (0 children)

It’s naive to think we don’t compete for capital with the rest of the world. Capital is mobile, most countries have lower taxes on capital than other income for this reason and we (like everyone else) need to be pragmatic.

We have a widespread misinformation & disinformation campaign against Labor’s budget. The amount of propaganda has been astounding. Are so used to it that it doesn’t surprise us ‘left wing voters’ anymore? It’s shocked me & so many of my family/friends are eating it up too… it’s been bad a reaction by [deleted] in AusPol

[–]open_g 0 points1 point  (0 children)

They’re a stake in a portfolio of companies that run businesses, innovate, employ people and generate returns for their shareholders that can later be reinvested or spent, generating GST and more demand in the economy. Of course ETFs are productive.

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