Latest / The Money Puzzle / Budget Special edition: What you need to do

Transcript

Budget Special edition: What you need to do · The Money Puzzle

0:10
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast.
0:13
Speaker 2: I'm James Kerby. Welcome aboard everybody.
0:15
Speaker 1: Well, it's our Budget Special and this was the most
0:18
Speaker 1: important budget for years.
0:20
Speaker 2: Folks. If you're an.
0:21
Speaker 1: Investor of any description, there are significant and I mean significant, right,
0:26
Speaker 1: I mean sweeping tax changes across the board that will
0:33
Speaker 1: affect every area of investments. Specifically property obviously comes to
0:38
Speaker 1: mind straight away, but capital gainst tax is applicable on
0:41
Speaker 1: any gain on anything, so we've got big changes in
0:44
Speaker 1: how you're taxed on profits you make basically from investments
0:48
Speaker 1: in property, in family trusts, how things are structured. Many
0:53
Speaker 1: of these changes, they've been threatened repeatedly, I mean, to
0:57
Speaker 1: be honest, they've been on the agenda a long time.
1:00
Speaker 1: Sixteen the shortened labor government tried ninety percent of these
1:05
Speaker 1: changes and they had no chance basically of getting them through.
1:10
Speaker 1: Here we are ten years later and the budget has
1:13
Speaker 1: brought them upon us. My guest today is Will Hamilton
1:17
Speaker 1: of Hamilton Wealth Management. He has yet again volunteered to
1:20
Speaker 1: take the hot seat on the Budget Special.
1:22
Speaker 2: How are you will? Very well, James, thanks for having me.
1:26
Speaker 2: It's great to have you.
1:27
Speaker 1: You know, some years, folks, we talked before the show
1:30
Speaker 1: and we're basically trying to find what's the most interesting
1:34
Speaker 1: parts of the budget. This year, we talked before the
1:37
Speaker 1: show and we say how much can we get in?
1:39
Speaker 1: Like what will we prioritize because there's so much around.
1:42
Speaker 1: I want to cut to the chase straight away and
1:44
Speaker 1: let's look at CGT because that's the big one, isn't it?
1:47
Speaker 1: Well really, because it cuts across everything it is.
1:49
Speaker 3: It is the really big one. And look, it materially
1:52
Speaker 3: increases the effect of text paid beyond long term investments
1:56
Speaker 3: for Australians, particularly where returns are driven by capital growth
2:00
Speaker 3: that rather than income. I think the other thing that
2:03
Speaker 3: was surprising was pre nineteen eighty five assets and now
2:06
Speaker 3: going to be textable for gains accrued from July twenty
2:08
Speaker 3: seven on winds as well. So this was a really
2:10
Speaker 3: big chat. These are big changes and there's other implications
2:13
Speaker 3: in there as well.
2:14
Speaker 1: They are as you mentioned, Thanks for mentioning that this
2:18
Speaker 1: pre nineteen eighty five issue. We'll talk about that in
2:20
Speaker 1: a millilefolks, and as applicable obviously largely to older people
2:25
Speaker 1: or someone who was lucky enough to be involved with
2:28
Speaker 1: assets for a long time, but that one wasn't leaked.
2:31
Speaker 1: For instance, just about half, just about most of this
2:34
Speaker 1: budget was leaked in various ways through the media, and
2:39
Speaker 1: that's why we have been talking about it for some time.
2:41
Speaker 1: But let's talk about what we know now, what we know,
2:44
Speaker 1: what we found out, and what you as an investor
2:47
Speaker 1: can do from here. So we'll this capital gainst SAX.
2:52
Speaker 1: Just to refresh everyone's memory on this. How it works
2:56
Speaker 1: for a long time since nineteen ninety nine is that
2:59
Speaker 1: if you make a profit on any investment okay, property shares, anything,
3:03
Speaker 1: sell a business, you are taxed at your marginal rate.
3:06
Speaker 1: We'll assume your marginal rate is the highest marginal rate.
3:09
Speaker 1: Just make a simple forty seven percent. However, if you
3:13
Speaker 1: hold the asset for more than one year, you get
3:15
Speaker 1: a fifty percent discount on the tax you are on
3:21
Speaker 1: your tax bill, which has been very useful for many
3:25
Speaker 1: people for a long time, particularly because that was introduced
3:29
Speaker 1: to cover inflation related issues, and inflation was very low,
3:33
Speaker 1: as you know in the past, for much of the
3:35
Speaker 1: period actually that this has been in place since nineteen
3:38
Speaker 1: ninety nine. Now the government has changed the game and
3:43
Speaker 1: they're going to go back to the old system where
3:45
Speaker 1: every year the tax assessment will be adjusted for inflation,
3:49
Speaker 1: and it is going to sharply increase under almost any
3:53
Speaker 1: scenario you can imagine, it's going to sharply increase the
3:57
Speaker 1: amount of tax you pay on a proper on shares,
4:01
Speaker 1: we might just start with property will and to make
4:03
Speaker 1: it simple for everybody, I got to talk about property
4:06
Speaker 1: first though. I will do a full property special show
4:09
Speaker 1: next Tuesday with Stuart Ween, so look out for that.
4:13
Speaker 1: But just on property, they seem to have been hit
4:16
Speaker 1: hard as well because they get Number one, they have
4:19
Speaker 1: CGT arrangements have changed where they have effectively a higher tax,
4:23
Speaker 1: and number two, negative gearing, again threatened for a long time,
4:28
Speaker 1: is now restricted only to new properties. So would you
4:31
Speaker 1: say that they were really the worst hits or a
4:33
Speaker 1: segment of investors.
4:35
Speaker 3: Absolutely, it's the worst hit, and it was that the
4:38
Speaker 3: double benefits that a lot of people had an issue with.
4:42
Speaker 3: And you've got both going forward on negative gearing, which
4:46
Speaker 3: has been grandfather, and you've got the CGT as well.
4:50
Speaker 3: So I also think that there the government's argument is
4:54
Speaker 3: that this is going to release properties onto the market
4:57
Speaker 3: and so first time buyers, we'll have an opportunity need
5:00
Speaker 3: to one acquire, and two it's going to reduce competition
5:05
Speaker 3: for those first time buyers, in particular not having to
5:08
Speaker 3: compete against as many investors coming into the market. I
5:12
Speaker 3: don't know if it's necessarily going to be the case
5:14
Speaker 3: as well.
5:15
Speaker 1: So one of the things you said at the very
5:16
Speaker 1: start was that it's going to change the gain basically
5:19
Speaker 1: because the capital gain is going to be taxed more
5:23
Speaker 1: heavily than it used to be. So if you think
5:25
Speaker 1: about a property investor, they have two This is two
5:30
Speaker 1: things going on. When you buy an investment property. You're
5:32
Speaker 1: going to try and get income from the rent and
5:35
Speaker 1: obviously ultimately you want to make a profit capital gain,
5:39
Speaker 1: and the tax on capital gain is now higher than
5:41
Speaker 1: it used to be and will be going forward, which
5:44
Speaker 1: means the emphasis perhaps changes on in the market to rentals.
5:49
Speaker 1: What might that mean for the shape of the market
5:51
Speaker 1: will What might it mean for the investment property market
5:53
Speaker 1: as we know it?
5:55
Speaker 3: Yeah, I think that one of the big things going forward,
6:00
Speaker 3: I don't think there won't be as many investors out there,
6:03
Speaker 3: And the area that's going to get hit is those
6:05
Speaker 3: that properties that have been purchased. And then we are
6:09
Speaker 3: rented provided into the rental pool and that's going to
6:12
Speaker 3: shrink and demand supply will tell you as well that
6:17
Speaker 3: rents will probably therefore go up because there will be
6:20
Speaker 3: less rental properties available. So again this is a contrary
6:24
Speaker 3: to what the government's claiming.
6:26
Speaker 1: Do you think people will end up do you think
6:28
Speaker 1: listeners on the show, individual investors will end up competing
6:31
Speaker 1: with corporate bulners more often where it'd be more advantageous
6:37
Speaker 1: to be a big company owning residential properties.
6:39
Speaker 3: I think there's that, and so we will go down
6:41
Speaker 3: that US route where you've got multi multi family housing
6:45
Speaker 3: that's one of the big things there, and or build
6:47
Speaker 3: to rent as it's called here, and I think that
6:50
Speaker 3: is definitely the path where we will be heading down.
6:55
Speaker 2: Right.
6:56
Speaker 1: One thing we wanted to make clear folks was this
6:59
Speaker 1: capital gainst tax measure which is coming down the line
7:05
Speaker 1: where it's just adjusted for inflation every year. A part
7:10
Speaker 1: of a surprise part of the budget was that there
7:14
Speaker 1: is a minimum that you must pay of CDT of
7:17
Speaker 1: thirty percent. This has been introduced. This is a sting
7:20
Speaker 1: in the tail. It means there's no way around it
7:23
Speaker 1: for people might say, oh, I can get around that
7:25
Speaker 1: I can get around this. That's gone to some degree
7:28
Speaker 1: because because the government has used this idea of introducing
7:32
Speaker 1: a minimum rate very clever and it's going to be
7:36
Speaker 1: a big thing, both in properly and in shares, but
7:39
Speaker 1: just to finish our property will So if there is
7:44
Speaker 1: these double disincentive if you like on property now where
7:49
Speaker 1: negative gearing you can only do it for new properties.
7:53
Speaker 1: Do you think anybody will say do you think any
7:56
Speaker 1: listeners would be rewarded if they said, okay, well you
7:58
Speaker 1: can still negatively gear and new proper is why don't
8:00
Speaker 1: I get in that way?
8:02
Speaker 3: But it all depends on the projected return, So yes,
8:05
Speaker 3: they're looking at this as a means to finance, you know,
8:08
Speaker 3: the building of new properties. I understand that because you
8:10
Speaker 3: know there's but it all depends on the return. And
8:13
Speaker 3: if the projected returns aren't going to be there, well
8:16
Speaker 3: then people aren't going to buy them. So there's properties,
8:19
Speaker 3: So you know, I think it's dangerous the paths they're
8:23
Speaker 3: going down. And poor Keating tried this when he was treasurer, and.
8:29
Speaker 2: He didn't try both.
8:30
Speaker 3: He tried one, which was the negative gearing side, and
8:34
Speaker 3: he had had to reverse it because the effect it
8:36
Speaker 3: had on the record Pole.
8:38
Speaker 1: Yeah, right, yes, you have that issue in housing right
8:43
Speaker 1: across where we As you said, there's a double hit
8:46
Speaker 1: on both the negative gearing and the CDT.
8:50
Speaker 2: Really interesting.
8:50
Speaker 1: Your point about changing the shape of the market and
8:53
Speaker 1: that individual investors could find themselves actually competing with the
8:58
Speaker 1: Blackstone and black Rocks of this world. I mean, it's
9:01
Speaker 1: entirely possible, as you say, because that's what's happened in
9:03
Speaker 1: the US when the private investors withdrew from the market. Okay,
9:08
Speaker 1: that's property. You can see how wide ranging this is, folks.
9:11
Speaker 1: There's so much to cut through. I just want to
9:13
Speaker 1: make one more point about negative gearing in property is
9:17
Speaker 1: grand folded. So if you're lucky enough to be doing
9:21
Speaker 1: it already, you'd be fine. Okay, we're talking about it
9:23
Speaker 1: from July one, twenty twenty seven onwards. CGT, however, just
9:28
Speaker 1: to make things a little bit more complicated, is only
9:30
Speaker 1: partially grand fothered. Okay, so watch out for that CGT.
9:35
Speaker 1: The capital gains change, the capital gains tax change that
9:38
Speaker 1: I mentioned at the start of the show, where it
9:40
Speaker 1: goes inflation indexing every year. How that will occur in
9:44
Speaker 1: relation to a property Let's say you own one five
9:46
Speaker 1: years before the change over five years after. Your first
9:49
Speaker 1: five years will be assessed on the old system fifty
9:52
Speaker 1: percent discount after holding it for twelve months, and the
9:56
Speaker 1: second five years will be assessed on an annual basis
9:59
Speaker 1: on inflation which is running pretty low at the moment,
10:01
Speaker 1: three or four percent.
10:02
Speaker 2: Have I got that right by understanding? Absolutely? Yes? Yeah. Yeah.
10:05
Speaker 1: So that's it, folks. That's as far as we know,
10:07
Speaker 1: So try and digest that if you can. In relation
10:10
Speaker 1: to property, and now we will swing to broader investment
10:15
Speaker 1: issues which involves shares and businesses. We'll take show break
10:20
Speaker 1: and we will be back to you in a moment. Hello,
10:30
Speaker 1: Welcome back to the Australian's Money Positive podcast. I'm James
10:33
Speaker 1: Kirby talking to Will Hamilton of Hamilton Wealth Management, regular
10:38
Speaker 1: on the show and my regular guest on the Budget special.
10:42
Speaker 1: We are talking about what we know so far and
10:45
Speaker 1: what you can do you may or may not do
10:49
Speaker 1: in relation to your investments that have been affected by
10:53
Speaker 1: the budget, and they will be affected, that's for sure.
10:56
Speaker 1: Let's pad it out a bit wider beyond property. Will,
10:59
Speaker 1: Now you know negative gearing changes actually were restricted to residentials.
11:03
Speaker 1: So keep that in mind, folks. So from here on
11:05
Speaker 1: we talk about the wider market. We're talking about the
11:08
Speaker 1: capital gains tax changes. The really big one, obviously is
11:11
Speaker 1: for shares. When I buy a share of any company,
11:16
Speaker 1: when I sell it after a year, I expect to
11:19
Speaker 1: get a fifty percent discount on my marginal tax rate,
11:24
Speaker 1: so it could be forty seven percent, and I expect
11:26
Speaker 1: it to come down to about twenty five. That's really
11:29
Speaker 1: going to change with this new arrangement where the tax
11:34
Speaker 1: rate's going to be much higher. Isn't it for the
11:36
Speaker 1: gain part of listed investments?
11:39
Speaker 2: For the gain part?
11:40
Speaker 1: So if I buy, so I have two shares to
11:42
Speaker 1: choose from, I have one where I know it's all
11:46
Speaker 1: about gain. Let's just take say Wise Tech, the tech company,
11:52
Speaker 1: and I have another share where I know it's all
11:54
Speaker 1: about broadly all about income, let's say Common Well Bank.
12:00
Speaker 1: Under this arrangement, wouldn't it make more sense not to
12:03
Speaker 1: buy the one that's focused on growth because the tax
12:06
Speaker 1: is much sharper on the gain than it is on
12:09
Speaker 1: the income.
12:11
Speaker 3: Well, I look at total turn and I think you've
12:13
Speaker 3: got to focus to total after tax return. And I
12:15
Speaker 3: think to complicate this you have the domestic site where
12:18
Speaker 3: you got frankin credits on income, but you've also got
12:21
Speaker 3: the fact that you know, when you look at our
12:23
Speaker 3: market from the lows during the Iron conflict to our
12:28
Speaker 3: market where it is now versus the US market, you've
12:31
Speaker 3: got to look at growth opportunities and offshore and offshore
12:33
Speaker 3: markets don't pay dividends and for an Australian taxpayer, they're
12:37
Speaker 3: not franked because there's no franking credits attached. So I
12:41
Speaker 3: do think you've just by buying something based on yield
12:45
Speaker 3: versus I think in the equanderics versus growth and trying
12:49
Speaker 3: to split that up. I always think that's a dangerous game.
12:51
Speaker 3: You've got to buy something based on total return, but
12:53
Speaker 3: now you've got to look at after tax return. You
12:57
Speaker 3: do have to take that into account, and I think
12:59
Speaker 3: that's a really important thing. And therefore where those essets
13:04
Speaker 3: to are assets to house suddenly becomes very important as well.
13:08
Speaker 3: So if it's in your nine versus family trust versus super.
13:12
Speaker 1: Sure, yeah, okay absolutely, and we'll try and get to that.
13:15
Speaker 1: But thematically income stock is favored over the growth stock
13:20
Speaker 1: tax wise.
13:20
Speaker 2: Is that very sick.
13:21
Speaker 3: Because cause a franking Yeah.
13:24
Speaker 1: Okay, And then folks, what's really important I know here
13:26
Speaker 1: is that it's not just local shares, right, it's any shares.
13:29
Speaker 1: Don Hampson, who has been on the show of Plato,
13:33
Speaker 1: did some numbers on a global share fund held for
13:36
Speaker 1: twenty years at of seven percent growth under the old
13:40
Speaker 1: system and the new system, and basically the tax paid
13:43
Speaker 1: by the Australian shareholder under the new system was something
13:48
Speaker 1: I get the number. It was about forty five percent higher. Will,
13:54
Speaker 1: So I think that's a really important point, isn't it.
13:56
Speaker 1: I mean, I would say it should weigh against but
14:00
Speaker 1: it's going to be a factor when someone is assessing
14:03
Speaker 1: whether they should buy global shares or growth shares, which
14:07
Speaker 1: wasn't there previously.
14:08
Speaker 3: Yeah, I think the after text focus has become even
14:11
Speaker 3: more important than it was, and that's I think the
14:15
Speaker 3: big thing about this. It's become It's always been important,
14:19
Speaker 3: but it's become even more important. And I think there's
14:22
Speaker 3: a lot of things that we now need to look
14:25
Speaker 3: at that have been there, but this they've become an
14:28
Speaker 3: increased focus and after text return is definitely one.
14:32
Speaker 1: And so maybe at this point I put to you
14:35
Speaker 1: something that I wrote and did a video on yesterday
14:39
Speaker 1: because it just struck me, and tell me what you
14:41
Speaker 1: think of this. And I know you want to talk
14:43
Speaker 1: about family trust and we will, but not everyone has
14:45
Speaker 1: a family trust, and not everybody wants to have one
14:48
Speaker 1: or needs one. But in terms of super right super,
14:53
Speaker 1: the way CGT is treated in super, folks, is that
14:55
Speaker 1: it's not actually treated the same way as outside super
14:59
Speaker 1: and it hasn't changed in the budget. This is so important,
15:01
Speaker 1: right The CGT tax treatment in super has not changed.
15:07
Speaker 1: It remains a thirty three percent discount, and in effect
15:10
Speaker 1: that means that your tax when you hold the acid
15:14
Speaker 1: for more than a year drops from fifteen percent to ten.
15:18
Speaker 1: I would have thought, then, will that a surf man
15:21
Speaker 1: is super fund in relative terms, is a winner here
15:25
Speaker 1: and becomes a much more attractive vehicle if you like,
15:28
Speaker 1: for containing or using to manage your investments.
15:34
Speaker 2: What do you think?
15:35
Speaker 3: Absolutely, I read your article and it was good and
15:37
Speaker 3: I agree with you. I think it's off managed. Superfunds
15:40
Speaker 3: has actually grown over the last couple of years quite substantially.
15:44
Speaker 3: And I think you know, one of the big relative
15:46
Speaker 3: winners out of this was Superannuation was untouched. But you've
15:50
Speaker 3: got to take into account the treatment that it's got
15:52
Speaker 3: at the moment, and no changes were made to the
15:54
Speaker 3: CG treatment inside superannuation funds, capital gains within superroman tax
15:58
Speaker 3: the concessional rates. First of all, I think that this
16:03
Speaker 3: increases the attraction of self maned super evans without a doubt.
16:06
Speaker 2: Except one thing.
16:07
Speaker 1: Will you can't get at it till your retire direct right,
16:11
Speaker 1: so you know, I mean, that's all fine. If you're
16:13
Speaker 1: sixty four or something, say oh that's pretty nice. But
16:16
Speaker 1: if you're a thirty four or forty four or twenty four,
16:20
Speaker 1: you're going to say, oh, that's no good. I don't
16:22
Speaker 1: want to put it. I don't want to use super.
16:24
Speaker 1: I don't want to use super for my investments. I
16:26
Speaker 1: want to succeed in my investments, and I want to
16:28
Speaker 1: get them out and spend them and be rewarded, you know,
16:33
Speaker 1: before I hit my sixties, which is a government that's
16:36
Speaker 1: a government determination. But in the real world, people don't
16:39
Speaker 1: want to do that. That's probably why the startups have
16:41
Speaker 1: been absolutely kicking about these changes. Mentioned that in a moment,
16:45
Speaker 1: but because the startup would be the most extreme version
16:48
Speaker 1: of this.
16:48
Speaker 2: Folks.
16:48
Speaker 1: If you were a startup and your whole your whole.
16:51
Speaker 1: It's not just your investment disposition, but your whole life
16:55
Speaker 1: is subsumed in getting this startup to work and then
16:59
Speaker 1: perhaps data sell that startup and to have a capital gain.
17:03
Speaker 1: It's all about capital gain. And you would heavily have
17:06
Speaker 1: relied upon the reliable notion since nineteen ninety nine that
17:11
Speaker 1: you get a fifty percent discount on the tax build
17:14
Speaker 1: a day. You got it when you sold your stock
17:16
Speaker 1: or your share in the company, and that is sort
17:18
Speaker 1: of annihilated now. And now I think I should say, so,
17:25
Speaker 1: will you want to tell our family trust? But they're
17:28
Speaker 1: not in this They're not in the scape patch here
17:30
Speaker 1: anymore either, are they No?
17:33
Speaker 2: Because they changed?
17:34
Speaker 1: Sorry, I would you explain to people what they were
17:36
Speaker 1: and what has happened.
17:37
Speaker 3: Well, Discretionary trusts have been used by a lot of
17:41
Speaker 3: if small businesses up and down the high streets of Australia.
17:44
Speaker 3: And yeah, the mom and dad that ran this business
17:47
Speaker 3: didn't take a salary, They took distributions through the trust.
17:51
Speaker 3: So I think it's concerned a lot of people because
17:53
Speaker 3: the way they've historically set up their businesses. And again
17:56
Speaker 3: we've talked about this quite a number of times that
17:58
Speaker 3: people established things based on the rules that existed at
18:02
Speaker 3: the time. Now discretionary family trusts does matter if you've
18:08
Speaker 3: done this is a wealth creation vehicle, or it's to
18:10
Speaker 3: operate a business. They're going to be subject to a
18:12
Speaker 3: minimum tax rate of thirty percent on distributions, So this
18:16
Speaker 3: significantly reduces the benefit of income distribution to lower taxed
18:20
Speaker 3: family members. That's another thing as well, where people have
18:22
Speaker 3: used this. Once a child reaches eighteen for income splitting
18:26
Speaker 3: at lower rates, we're now you're going to have a
18:28
Speaker 3: minimum tax rate of thirty percent. I think the big
18:30
Speaker 3: thing this does affect professionals. It does affect business owners
18:33
Speaker 3: as I just mentioned, and these business owners don't need
18:35
Speaker 3: to be necessarily big businesses. They can be these mum
18:38
Speaker 3: and dad businesses that up and down the high streets
18:41
Speaker 3: as I mentioned, and families who built structures around legitimate
18:44
Speaker 3: income splitting. So I think there's three areas that have
18:47
Speaker 3: been affected. Trust Such structures are not going to be obsolete,
18:51
Speaker 3: but their role and effectiveness it's changed materially.
18:55
Speaker 1: So it an blunt sounds like a blonte instrument. They're
18:57
Speaker 1: after multimillionaire investors had shaped things around family trusts.
19:03
Speaker 3: YEP.
19:03
Speaker 2: And they'll get.
19:04
Speaker 1: Them, but they'll also get mom and dad small business owner.
19:08
Speaker 2: Is that just correct?
19:09
Speaker 3: And this is what I argue back in twenty nineteen
19:12
Speaker 3: when or eighteen, when Bill Shorten was looking to run
19:14
Speaker 3: on this and it flagged at Bill Chris Bowen had
19:16
Speaker 3: flagged all this. I thought the unfairness of it was. Yes, look, people,
19:22
Speaker 3: you utilize the tax laws that existed on the day.
19:25
Speaker 3: But one of the big uses of it was, yeah,
19:27
Speaker 3: I think it was over a million small businesses or
19:29
Speaker 3: something that had effected.
19:31
Speaker 1: Quite nine million people get trust distributed.
19:33
Speaker 3: And this was businesses that had set up and yeah,
19:38
Speaker 3: these people are they're working their asses off, so to speak,
19:41
Speaker 3: and you know they're not taking a salary. It's distribution through.
19:44
Speaker 1: Trusts, and that's part of the You might argue they
19:50
Speaker 1: wouldn't they would just go around the corner and get
19:52
Speaker 1: a salary job.
19:52
Speaker 2: Correct if they didn't have that struble. Correct. Imagine that
19:56
Speaker 2: that's the issue. Yeah, all right, we'll be back in
19:58
Speaker 2: the moment, folks.
19:58
Speaker 1: I want to bring up a couple but let's say
20:00
Speaker 1: random notes that you really should be aware of in
20:02
Speaker 1: relation to the budget from what we know so far.
20:05
Speaker 1: Talk to you soon. Hello, Welcome back to the Australians
20:16
Speaker 1: Money Puzzle podcast Special budget episode with myself, James Kirby
20:22
Speaker 1: and Will Hamilton. Okay, now, folks, we've given you if
20:25
Speaker 1: we still stop tour so far of what we see
20:29
Speaker 1: as the main items emerging from this year's budget, dramatic budget.
20:35
Speaker 1: We've talked about CGT and the change there. We've talked
20:39
Speaker 1: about negative gearing and in case we didn't completely spell
20:42
Speaker 1: it out, existing properties basically will no longer be allowed
20:45
Speaker 1: to be negatively geared. Only new properties will. And the
20:49
Speaker 1: reality is that eighty percent, by the government's own admission
20:52
Speaker 1: folks and the budget papers, eighty percent of properties that
20:55
Speaker 1: are negatively geared are not new properties. They are existing
20:58
Speaker 1: properties and there's a probably a very good reason for
21:01
Speaker 1: that in that they are not as reliable price wise.
21:05
Speaker 2: Have we any evidence on that? Will?
21:07
Speaker 1: I mean, if I come into you as an advisor
21:10
Speaker 1: and I said to you, I want to buy five
21:12
Speaker 1: new houses and gear them rather than five existing houses,
21:16
Speaker 1: is there some sort of innate superior asset quality to
21:20
Speaker 1: the existing houses?
21:22
Speaker 3: Well, I think it's on that availability to rent in
21:26
Speaker 3: that return and where is the rental market? And unfortunately
21:29
Speaker 3: the rental market. The people wanting to rent is generally
21:32
Speaker 3: in a city with very few houses or built in
21:35
Speaker 3: a city because the land is available in the outer
21:38
Speaker 3: parts of the cities. So it's a mismatch of where
21:41
Speaker 3: the demand supplies.
21:43
Speaker 1: Okay, yeah, so there is that, folks. And then we
21:47
Speaker 1: had the issue around family trust. I think more broadly, well,
21:50
Speaker 1: there's a couple of other things. I think we might
21:51
Speaker 1: mention one thing in terms of exceptions loopholes yet to
21:55
Speaker 1: be clarified the government. Apart from these changes, what's the
22:00
Speaker 1: real sting in the tail, folks, as I mentioned, is
22:02
Speaker 1: this introduction of minimum So the minimum CGT tax rate
22:07
Speaker 1: of thirty percent, a minimum family trust tax rate of
22:10
Speaker 1: thirty percent. Games will continue, financial engineering will continue, but
22:15
Speaker 1: boy or boy, I tell you what, you're going to
22:16
Speaker 1: wipe out a lot of it, or you're going to
22:18
Speaker 1: make it terribly complex and arcane to get around that
22:21
Speaker 1: testamentary trust will Just to make the point wills in
22:24
Speaker 1: the States trust relating to wills in the States in
22:29
Speaker 1: the budget papers they have, they are expressly excluded along
22:35
Speaker 1: with charities, I might add in this and primary income
22:39
Speaker 1: which is farmers. Of course, they've been excluded Is there
22:42
Speaker 1: any sort of wriggle rum here for the government to
22:45
Speaker 1: come back in and impose a death tax style charge
22:52
Speaker 1: on the Testamentary Trust or do you think they have
22:55
Speaker 1: as the papers would clearly infer being allowed exemption.
23:00
Speaker 3: They've been allowed exemption, and you're the government was asked
23:03
Speaker 3: again today and they've confirmed that they're exempted. But I
23:08
Speaker 3: will say there's no more generous interpretation of what has happened.
23:11
Speaker 3: Is the government's broken its word on this. So let's
23:14
Speaker 3: just wait and see what's potentially down the track one
23:17
Speaker 3: day and I mean one.
23:19
Speaker 2: Day, right, Yeah, it's broke. Yes.
23:22
Speaker 1: So they said they wouldn't go near CDT, and they
23:24
Speaker 1: said they wouldn't.
23:24
Speaker 2: Go to negative gearing negative gearing.
23:27
Speaker 1: And did they say they wouldn't go near Family Trust?
23:29
Speaker 2: I can't remember.
23:30
Speaker 3: They just said there wouldn't be any texting increases.
23:33
Speaker 1: Yeah, okay, right, And they have justified obviously this by
23:37
Speaker 1: seeing that times have changed and we will not go
23:40
Speaker 1: down that road, which is a political debate, except to say,
23:43
Speaker 1: as investors, a lot of what we know has been
23:46
Speaker 1: sort of turned inside out. It seems to me that
23:49
Speaker 1: the worst thing here well is that incentive. It's kind
23:53
Speaker 1: of smothered, and I don't see any incentives to invest.
23:57
Speaker 1: I see loads of disincentives to invest. The startups are
24:02
Speaker 1: kicking loudest as they should, but I see that there
24:05
Speaker 1: is a regular one there that they are in negotiations
24:09
Speaker 1: to see how it might apply. So do you think
24:12
Speaker 1: there might be exemption for a startup investing? And if
24:16
Speaker 1: there was, would more people like your clients go into
24:21
Speaker 1: startup investing?
24:23
Speaker 3: Again, you've got a balance risk with return and you
24:25
Speaker 3: don't put all your eggs in one basket. But the
24:27
Speaker 3: government has said, well, the charmers has said he will
24:30
Speaker 3: look at this, but he hasn't said how he will
24:33
Speaker 3: look at it, and he hasn't announced in any details
24:37
Speaker 3: whatsoever except that the government will or treasury. I think
24:40
Speaker 3: he said we'll look at this and so we'd wait
24:43
Speaker 3: and we need to wait and see. But that is
24:45
Speaker 3: I think a big issue that had the incentive to invest.
24:49
Speaker 3: And Australia has a productivity problem and one of the
24:54
Speaker 3: ways to get around lower productivity is investment. And you
24:58
Speaker 3: know this budget deliver as high taxes, no tax reform,
25:02
Speaker 3: no meaningful regulatory reform, and reduced incentives to invest. And
25:07
Speaker 3: that's what you just touched on and we need those
25:10
Speaker 3: four to increase productivity so we can become a wealthier nation.
25:14
Speaker 1: Do you think with I mean, obviously startup investing. Even
25:17
Speaker 1: if they did exempt its, most people aren't wealthy enough
25:21
Speaker 1: or risk are willing to take the risks in there.
25:25
Speaker 1: More generally people by what they.
25:28
Speaker 3: Know tion accessibility. Yeah, I think that's a big thing.
25:32
Speaker 3: But secondly, these people will just shift what they're doing offshore,
25:37
Speaker 3: so we'll lose the benefit of that here in Australia
25:41
Speaker 3: and the creation of jobs and things like that, but
25:43
Speaker 3: just move it to Asia, to the United States.
25:47
Speaker 1: Just like they've been listening off correct. Yeah, yeah, the
25:52
Speaker 1: Atlassians of this world.
25:54
Speaker 2: Come well.
25:54
Speaker 1: Bank had its worst in a long long time this week,
25:58
Speaker 1: a fell ten percent one stage, which is a lot
26:00
Speaker 1: for comok Bank, often the biggest stock in the market.
26:03
Speaker 1: Bell Weather stock the bell Weather stock for Australia. The
26:07
Speaker 1: explanation they miss their numbers to some degree. But the
26:09
Speaker 1: explanation kind of knee jark explanation, if you like, has
26:13
Speaker 1: been that the bank is so exposed to housing and
26:17
Speaker 1: the housing has had its good times and these new
26:20
Speaker 1: taxes will flatten house prices going forward. If that was
26:24
Speaker 1: the case. It flattened all acid prices, you would think.
26:26
Speaker 1: But what's your view.
26:29
Speaker 3: On CBA, Well, the banks or fell yesterday with CBA
26:33
Speaker 3: was the worst hit. I think the big thing is
26:35
Speaker 3: it's a combination of, as you just said, that outlook
26:39
Speaker 3: for housing, but also the outlook for investment properties, which
26:42
Speaker 3: has definitely decreased quite significantly. And also because there's only
26:47
Speaker 3: one part of the market now that residentially in residential
26:50
Speaker 3: housing that you can gear, so there'll be again less
26:54
Speaker 3: demand and that affects the largest bank exposed to this,
26:57
Speaker 3: and that is CBA.
27:00
Speaker 1: And obviously people who are going to keep putting money
27:02
Speaker 1: into their homes as if they didn't already overdo that.
27:05
Speaker 1: But putting money into your home is not investing. That's
27:08
Speaker 1: not an investment. That's your home. I always say, and
27:11
Speaker 1: that your banker might say that to you too. So
27:14
Speaker 1: will you tell me just if you would in this
27:18
Speaker 1: final segment elaborative you would when you were talking about
27:22
Speaker 1: investment vehicles and to what extent that's changed now what
27:25
Speaker 1: people might start to consider that they haven't considered before.
27:32
Speaker 3: That's a really good thing to bring up, because I
27:33
Speaker 3: think that it is a as I said, before it's
27:36
Speaker 3: about after tax returns, and when you're looking at after
27:40
Speaker 3: tax returns, you need to look at therefore, where does
27:45
Speaker 3: where do these assets sit? If you've got you've got
27:47
Speaker 3: the ability to use multiple vehicles, so for innuations does
27:51
Speaker 3: stand out. It's the big winner in this, and structuring
27:56
Speaker 3: is suddenly becomes a very important being in your own name. Again,
27:59
Speaker 3: you need to look at it individual tax rates because
28:02
Speaker 3: you're going to have a minimum tax rate in many
28:05
Speaker 3: things now across the board of thirty percent, and you
28:08
Speaker 3: need to look at where to domicile assets if you
28:12
Speaker 3: can benefit from a lower tax rate. And I think
28:14
Speaker 3: that's incredibly important.
28:17
Speaker 1: Right And it's there anything that comes to mind that
28:20
Speaker 1: perhaps listeners wouldn't have thought about or even known about.
28:22
Speaker 3: Before superannuation becomes I think, but as you said, rightly,
28:27
Speaker 3: you can't touch this. It's going to be in there
28:30
Speaker 3: NTI sixty and this is an important thing. But your
28:33
Speaker 3: own home is I think it's going to become a
28:37
Speaker 3: focus of a couple of people have already said that.
28:39
Speaker 3: But again, as you brightly said, it is not an investment,
28:43
Speaker 3: it's not an investment class. So I think that people
28:47
Speaker 3: are going to focus that it is again on it
28:50
Speaker 3: is tax free, so people are going to have to
28:53
Speaker 3: look at things where there is that tax rate potentially
28:56
Speaker 3: below thirty percent, and as I said, also this marginal
28:58
Speaker 3: tax rates if spouse or something is below that, and
29:01
Speaker 3: how you can benefit from those things. But that after
29:05
Speaker 3: TeX's return has become very far more important. Always been
29:08
Speaker 3: a focus, always should have been a focus. That it's
29:11
Speaker 3: going to become an even more important focus.
29:14
Speaker 1: Okay, I think that's exactly where we will leave it
29:17
Speaker 1: for and our folks so much to talk about, but
29:20
Speaker 1: it is all about after tax for trans as Will says,
29:22
Speaker 1: it always has been. But when the tax changes and
29:27
Speaker 1: this minimum of thirty percent sort of pulsating through the
29:31
Speaker 1: entire system and enshrined in CGT and enshrined in family trust,
29:35
Speaker 1: it's really time if you haven't thought about this before,
29:39
Speaker 1: to think about before we move, where and how you
29:43
Speaker 1: structure your own investments. Keep with us the property I
29:48
Speaker 1: want to go into thoroughly in tuesdays through with Stewart Means,
29:53
Speaker 1: and we will look at a lot of issues that
29:55
Speaker 1: are emerging. I didn't get into today, but I'll tell
29:58
Speaker 1: you what. There's a lot you need to know about
30:00
Speaker 1: investment property and how, for instance, it's going to be
30:04
Speaker 1: valued and text and the different markets that are going
30:09
Speaker 1: to emerge as a result of these changes. For now
30:12
Speaker 1: we will say goodbye to Will. Thank you very much.
30:14
Speaker 2: Will. Great to have you on the show as always.
30:16
Speaker 3: Thank you for having me. James really enjoyed it.
30:19
Speaker 1: That was Will Hamilton, folks of Hamilton Wealth Partners. Great.
30:22
Speaker 1: Let's have some questions now this I can see the
30:25
Speaker 1: questions that are starting to come in, which is great.
30:27
Speaker 1: Keep them rolling. I will to vote next week to
30:31
Speaker 1: answering them. Okay, So as I say, Tuesday we'll have
30:33
Speaker 1: True Dreams. We'll talk about property and all its in
30:35
Speaker 1: all dimensions. And on Thursday next we'll have Liam Short
30:39
Speaker 1: Financial Advisor and we will answer any questions. I will
30:43
Speaker 1: try to get any question that comes in answered between
30:46
Speaker 1: those two shows, so you have plenty of time, plenty
30:48
Speaker 1: of notice.
30:49
Speaker 2: Okay.
30:50
Speaker 1: Today's show was produced as always by Lias Sammaglue. Talk
30:54
Speaker 1: to you soon. The Cold Shoulder of h