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Budget fallout: Before you do anything, do this · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast and
0:13
Speaker 1: James Kirby, welcome aboard everybody. Do you know most years
0:17
Speaker 1: I do a budget special show, one show that's it. Well,
0:24
Speaker 1: this extraordinary landmark budget it continues to throw up questions
0:30
Speaker 1: and our revelations, I think, and we need to do
0:33
Speaker 1: one more show on this, and we do it today.
0:36
Speaker 1: There's a lot I want to tell you about beyond property. Okay,
0:39
Speaker 1: so we did this special property show on Tuesday with
0:42
Speaker 1: Stuart Weams. Don't miss that. It was very good and
0:45
Speaker 1: what I want to do today is to cover the
0:47
Speaker 1: broader issues for you, the general investor, on all things
0:51
Speaker 1: and what we know now. And the second week after
0:53
Speaker 1: the budget, the smoke is cleared to a considerable degree.
0:56
Speaker 1: There's a lot more we know now than we did
0:58
Speaker 1: a few days ago. I guessed, is Liam shot from
1:01
Speaker 1: the Sons Wealth Group? How are you Liam?
1:04
Speaker 2: Hi? James? Doing fine? Thank you?
1:06
Speaker 1: Good to have you on the show. As always, it's
1:09
Speaker 1: a head of a budget and I've been looking at
1:11
Speaker 1: all the various notes that people have put out, and
1:13
Speaker 1: I looked at the notes you've put out, of course,
1:15
Speaker 1: and I suppose me to stand back for a moment
1:18
Speaker 1: from the sort of headlines and the surprises, you know,
1:21
Speaker 1: what is reel in here, what's concealed in here? But
1:26
Speaker 1: also what matters most stand back for a moment and
1:28
Speaker 1: say what really matters, and I think is capital gains
1:33
Speaker 1: tax is what really matters in that it affects everybody,
1:38
Speaker 1: every investor, whatever they do, almost it's inescapable, and it's
1:44
Speaker 1: about to become a higher tax for everybody. I think
1:48
Speaker 1: that's really the big one. What's your view on that one,
1:52
Speaker 1: Liam on CGT and what investors should know.
1:55
Speaker 2: Yes, So basically the CGT changes nearly touch every asset. Basically,
2:00
Speaker 2: people need to understand the fifty percent CGT discount that
2:03
Speaker 2: they're used to having is now being replaced with the
2:06
Speaker 2: base indexation modeled that we had pre nineteen ninety nine.
2:11
Speaker 2: But also it's sticky in they're a thirty percent minimum
2:14
Speaker 2: tax on the net capital gains and this changes the
2:17
Speaker 2: strategies for so many people because of that. So it's
2:21
Speaker 2: not just property that you've already dealt with. It shares,
2:24
Speaker 2: commercial properties, business assets, ETFs, mantage funds, gold, bullion, crypto,
2:30
Speaker 2: whatever you're looking at, everything's affected by it. And this
2:35
Speaker 2: is one of the real weird things about this, because
2:36
Speaker 2: they said this CGT move was to try and encourage
2:40
Speaker 2: people to get out of property so that young people
2:43
Speaker 2: could get in. But most young people are using those
2:46
Speaker 2: other assets to build up their deposits, and now they're
2:49
Speaker 2: going to get hit.
2:50
Speaker 1: I don't want to roll down the political sort of
2:52
Speaker 1: blind too much, but there is that irony that the
2:56
Speaker 1: grandfathering of the negative gearing, for instance, creates a privilege
3:01
Speaker 1: class of older investors who can negatively gear forever, which
3:05
Speaker 1: I would have thought was the exact oppotite of what
3:07
Speaker 1: they were trying to achieve. However, what I want to
3:09
Speaker 1: concentrate on it is what it means for everyone listening
3:12
Speaker 1: who is an investor. So let's just talk then about
3:16
Speaker 1: the main I imagine from most people's shares and need
3:20
Speaker 1: tfs and managed funds, which are folks, they're all the
3:22
Speaker 1: one thing, right, They're investing in the share market regardless,
3:25
Speaker 1: it's just a question of the vehicle or using. Are
3:28
Speaker 1: there types of shares that win here and are the
3:32
Speaker 1: types of shares that lose here? And would you explain
3:35
Speaker 1: the difference?
3:37
Speaker 2: Yes, So going forward, you know, traditionally, people if they
3:40
Speaker 2: were investing for the longer term would go for the
3:42
Speaker 2: growth because they knew they were getting the fifty percent
3:45
Speaker 2: CGT discount. Now I've got a feeling people don't start
3:48
Speaker 2: aiming more towards the income side of things, especially if
3:51
Speaker 2: they're negative gearing, so that they'll want to aufset those
3:54
Speaker 2: gearing costs with as much income as possible. So the
3:57
Speaker 2: assts that are going to look attractive or dividend orientateed
4:00
Speaker 2: shares with franking credits, international shares that pay decent income,
4:04
Speaker 2: commercial property. And then on the flip side, there maybe
4:08
Speaker 2: some assets like gold which will come out as maybe
4:12
Speaker 2: a winner long term because traditionally it was a hedge
4:15
Speaker 2: against it. It was used as a hedge against inflation.
4:17
Speaker 2: I know the last few years it's run well ahead,
4:20
Speaker 2: but traditionally it was there to safeguard it during times
4:23
Speaker 2: of high inflation. Goal would tend to go up as well.
4:26
Speaker 2: So under these new rules, with the indexation, with the
4:29
Speaker 2: you know your cost based index with inflation, if there
4:32
Speaker 2: is high inflation, then gold will do all right out
4:34
Speaker 2: of that because there's no income coming from it. There's
4:36
Speaker 2: no income and any growth should be covered by the
4:38
Speaker 2: inflation indexation.
4:40
Speaker 1: Just to wind back for a moment. We'll cover both issues.
4:44
Speaker 1: We don't want to confuse the listeners. When you said
4:45
Speaker 1: negative gearing, there you're talking about you're talking about negative
4:48
Speaker 1: gearing your share portfolio or your retfort forolio or your
4:51
Speaker 1: management portfolio doesn't matter. Most people don't negative gear shares,
4:54
Speaker 1: do they? Or am I wrong?
4:56
Speaker 2: A lot of younger people do, so they're trying to
4:59
Speaker 2: build portfolio sor they're using a little bit of leverage.
5:01
Speaker 2: You'll find a lot of people now moved away from
5:04
Speaker 2: that because of the fear of margin calls. They're using
5:07
Speaker 2: internally leveraged ETFs like the gear etf further.
5:11
Speaker 1: The buying gear rise. And but what about the negative
5:16
Speaker 1: gearing in the way that we know where the person
5:18
Speaker 1: lessly gets a loan to buy the shares and then.
5:23
Speaker 2: A lot of people now what you will find, instead
5:25
Speaker 2: of borrowing against their home to buy a new investment property,
5:29
Speaker 2: may start looking at borrowing against their home to do shares,
5:33
Speaker 2: ETFs and investments like that, because it's the lowest form
5:36
Speaker 2: of borrowing they can get. I think in margin loan
5:39
Speaker 2: you're probably talking about eight point five nine percent, whereas
5:42
Speaker 2: you can borrow against your home on at five and
5:44
Speaker 2: a half six percent.
5:45
Speaker 1: Yes, good, very good. Really worth thinking about that, folks,
5:49
Speaker 1: if you haven't thought about it already. Okay, So negatively
5:52
Speaker 1: gearing shares could become more popular makes more sense than
5:56
Speaker 1: it did previously in relative terms. That is, relative to
5:59
Speaker 1: property investing on existing established properties, which of course are
6:03
Speaker 1: no longer allowed after July one, twenty twenty seven, for
6:07
Speaker 1: negative gearing. Okay, point one two. Gold the essential point
6:13
Speaker 1: I wanted to just develop, Liam. In terms of gold,
6:18
Speaker 1: are you saying that gold was good? Anyway? Gold has
6:21
Speaker 1: its uses, many people believe, some of the most influential
6:26
Speaker 1: people in the world, I would add, in terms of
6:28
Speaker 1: wealth advisors I'm thinking of, you know, Morgan Stanley, et cetera,
6:33
Speaker 1: say that the outlook for gold remains very strong because
6:36
Speaker 1: of a variety of reasons, including persistent inflation, et cetera,
6:40
Speaker 1: not to mention that old and chestnut uncertainty, which by
6:43
Speaker 1: the way, is always there. But in relation to gold,
6:49
Speaker 1: are you saying that gold becomes more attractive? Is there
6:52
Speaker 1: something to do with the tax changes and the budget
6:54
Speaker 1: that makes gold more attractive or is that just a coincidence?
6:57
Speaker 2: No, well it is because now you're looking at if
7:00
Speaker 2: in periods of high inflation, the new method may suit
7:04
Speaker 2: gold investors better than the fifty percent discant. So it
7:07
Speaker 2: just depends on what we see going forward.
7:09
Speaker 1: Can you just explain it a little bit morely? And
7:11
Speaker 1: it's a really good idea, but could you just did
7:14
Speaker 1: you just artakeing of it for the every day investor.
7:17
Speaker 2: So let's say you buy one hundred dollars worth of
7:19
Speaker 2: goal today and let's say just consistent inflation of seven
7:23
Speaker 2: and a half percent, you know, really high inflation for
7:26
Speaker 2: the next ten years. So you're looking at over you know,
7:29
Speaker 2: if you compound it it's over one hundred percent inflation, Well,
7:33
Speaker 2: your one hundred dollars of gold, the cost place will
7:36
Speaker 2: go up the same, It will go up to two
7:38
Speaker 2: hundred dollars. So when you do sell it, if it's
7:41
Speaker 2: gone up to two hundred and fifty underd and fifty
7:43
Speaker 2: percent discount, they will have got seventy five dollars back.
7:47
Speaker 2: Under the inflation method, the cost pass is two hundred.
7:50
Speaker 2: They're selling for two point fifty. There's only fifty dollars
7:54
Speaker 2: that's subject to.
7:55
Speaker 1: The tax, right, Oh, I see yes, and it's riding
7:59
Speaker 1: along day Sicily surfing along in tandem. Yeah, okay, past
8:03
Speaker 1: preson ever dimension networks and really good insight there, which
8:07
Speaker 1: is what this show is all about. Okay, there's a
8:09
Speaker 1: couple of other things we want to talk about, but
8:11
Speaker 1: one quick thing I want to put to you is
8:13
Speaker 1: similar in terms of insights and observations. If the CGT
8:19
Speaker 1: rate for most people, most of the time on most
8:21
Speaker 1: assets has become higher, effectively higher because the discount isn't
8:28
Speaker 1: as good as it used to be, but in self
8:31
Speaker 1: managed super funds it remains unchanged, then is this a
8:36
Speaker 1: win for self managed super funds? And does it actually
8:39
Speaker 1: really add to their attractions? I mean I think it does,
8:42
Speaker 1: but can you kind of challenge that view or take
8:44
Speaker 1: it out?
8:45
Speaker 2: I'm keeping quite a better James, because I don't want
8:48
Speaker 2: to raise the flag. It does mean that super is
8:50
Speaker 2: now still the most attractive place to hold your assets.
8:55
Speaker 2: It was more attractive, yes, but you know this is
8:58
Speaker 2: still got to get you part Parliament and I'm looking
9:01
Speaker 2: at you.
9:01
Speaker 1: Don't worried that they've forgotten this? Do you really think
9:03
Speaker 1: that they didn't? Do you really think that they didn't
9:06
Speaker 1: think about this? I mean we have to believe that
9:08
Speaker 1: they think about everything.
9:09
Speaker 2: Yeah, but what I'm worried about is if they need
9:11
Speaker 2: green support to get the budget through that they're going
9:15
Speaker 2: to ask for things like the lrba's that borrowing through
9:17
Speaker 2: super to be. They've been trying to get rid of
9:19
Speaker 2: that for years. Yes, so I'm saying play the little
9:22
Speaker 2: story at the moment, but it really is a case
9:25
Speaker 2: of people need to with their super, get their contributions in,
9:29
Speaker 2: get the spouse contribution in, get the super splitting done.
9:32
Speaker 2: Top up to your thirty thousand next year. That goes
9:35
Speaker 2: up to thirty two and a half thousand, James, So
9:37
Speaker 2: there's a lot of space. Look at your unused for
9:39
Speaker 2: the last five years, and really if you're anywhere, you know,
9:43
Speaker 2: fifty five plus, you should be really looking at pumping
9:46
Speaker 2: that super up. And one of the main things you
9:49
Speaker 2: need to understand now, do your search before you get
9:51
Speaker 2: to sixty. It's so important to try and get into
9:53
Speaker 2: pension phase as early after sixty as possible, and that
9:57
Speaker 2: that means meeting a condition of release. So I keep
10:00
Speaker 2: on telling this one to people, but it's leaving any
10:03
Speaker 2: one employer after sixty. So you can have your main
10:06
Speaker 2: job start up, a second sideline job, a sideline hustle,
10:09
Speaker 2: do uber or do you know to work at the election.
10:12
Speaker 2: Dudes might have people who in vigilated exams of the
10:15
Speaker 2: schools and universities. Yeah, once you finish that job, you've
10:21
Speaker 2: met a condition of release, so you could still be
10:24
Speaker 2: doing your main job. That means you're getting your super
10:26
Speaker 2: indepension phase five to seven years earlier than you normally would.
10:30
Speaker 2: All of these are going to become so much more
10:31
Speaker 2: important because of these changes to tacks.
10:33
Speaker 1: Yeah, and you know what I mean, I'm thinking out
10:36
Speaker 1: loud here, but in a way that's it's a bit
10:38
Speaker 1: disheartening that rushing into a pension is the answer here.
10:42
Speaker 1: But it just shows the lack of incentive that was
10:44
Speaker 1: in the budget. There's so much sort of smothering of
10:46
Speaker 1: incentive and it's understandable they clam down in some ways,
10:50
Speaker 1: particularly negative fearing, but the lack of incentive is very disappointing.
10:54
Speaker 1: One thing you said, Earleam about the superannuation. The amount
10:59
Speaker 1: you can put into super pre tax that is a
11:02
Speaker 1: concessional basis every year. When Liam said it goes up
11:07
Speaker 1: to thirty two thousand, five hundred next year, you mean
11:10
Speaker 1: next financial year right from July yep, for first July.
11:13
Speaker 1: First of July. Yeah, that's also something really worth talking
11:16
Speaker 1: about and thinking about, folks. Okay, we'll be back on second.
11:20
Speaker 1: Lots more to talk about. Hello, Welcome back to The
11:37
Speaker 1: Australian's Money Puzzle podcast. James Kirby here with Liam Short
11:40
Speaker 1: of the Sonness Wealth Group s O n AS. Now, folks,
11:46
Speaker 1: I think I'm going to give Liam the opportunity here
11:49
Speaker 1: as a sensible rational advisor to say what many advisors
11:55
Speaker 1: have been saying, and it's important, I think to hear
11:57
Speaker 1: him out on the mechanic and logistics of this. This
12:01
Speaker 1: is a budget that is quite dramatic and quite wide ranging,
12:06
Speaker 1: but it's at this data. It's a piece of paper.
12:09
Speaker 1: It has not been through parliament and as we know,
12:12
Speaker 1: as of seasoned investors know, by the time stuff gets
12:16
Speaker 1: through parliament it can look very different. If you think
12:18
Speaker 1: about the super tax, it was supposed to be on
12:20
Speaker 1: on realized gains. We had a lot of rgbigie around
12:23
Speaker 1: that and in the end it wasn't on realized gains.
12:26
Speaker 1: So things can really change. So line, what are you
12:30
Speaker 1: telling your your clients?
12:32
Speaker 2: Yeah, look like most people are saying, wait for the
12:34
Speaker 2: draft legislation to before making any major us But what
12:38
Speaker 2: you can be doing now is review every single asset
12:41
Speaker 2: you know or that you have in your portfolio and
12:44
Speaker 2: look at its profit and loss position, it's income decision,
12:47
Speaker 2: its growth positions, so that when the legislation is finalized,
12:51
Speaker 2: you're ready to make your decisions in foreign decisions. If
12:54
Speaker 2: you were already planning to sell something, that's fine, maybe
12:57
Speaker 2: bringing it forward to certain the tune this year forth
13:00
Speaker 2: there to change, just in case, But don't just make
13:03
Speaker 2: decisions that. Once the changes are through. That's when you
13:08
Speaker 2: need to review your investment strategy and go Should I
13:11
Speaker 2: now be more focusing on long term income focused assets
13:14
Speaker 2: and away from strategies that high capital growth because of
13:17
Speaker 2: the changes.
13:19
Speaker 1: You're saying, get ready, get informed, but don't make big
13:23
Speaker 1: moves until you see this legislated.
13:27
Speaker 2: Yeah. For example, I saw somebody yesterday sort of recommending
13:31
Speaker 2: people jump into property as quick as they can't jump
13:33
Speaker 2: into shares. That's example. Just there's never a reason to
13:37
Speaker 2: rush like that because you'd more than likely make an
13:40
Speaker 2: absolute passionate Yeah.
13:44
Speaker 1: Indeed, Okay, we'll quickly deal with trusts. We won't go
13:48
Speaker 1: too far into the thickets of this, folks, but Lia
13:52
Speaker 1: mentioned at the start I think one of the most
13:55
Speaker 1: clever aspects of this project whilst they put in a
13:58
Speaker 1: minimum CGT rate. And similarly on family trusts, which people
14:03
Speaker 1: have been threatening, politicians have been threatened for many years
14:06
Speaker 1: to do something about that, is to reform. They've put
14:09
Speaker 1: in a minimum of thirty percent as well to our surprises.
14:15
Speaker 1: And you've probably noticed the Australian developed the story first
14:19
Speaker 1: and it became magicensation for over in the last few days.
14:24
Speaker 1: It was unclear originally in the budget papers. That is,
14:28
Speaker 1: it would seem some a quick reading of the budget
14:30
Speaker 1: papers suggested or infair perhaps to some that all trusts,
14:38
Speaker 1: testamentary trusts were excluded in the way the charities et
14:41
Speaker 1: cetera excluded. That's not the case. There's two types of
14:44
Speaker 1: testamentary trust. There's a fixed trust which almost nobody uses,
14:48
Speaker 1: and there's a testamentary discretionary trust and that will be
14:52
Speaker 1: included in the new family trust clamped down. What does
14:57
Speaker 1: that mean, Liam, What do you think do in that situation?
15:02
Speaker 2: Yeah, well, they're really going to need to review the
15:05
Speaker 2: wills and check you know. The idea of the testamentary
15:10
Speaker 2: trust is that you're leaving money to your beneficiaries.
15:12
Speaker 1: Sorry, and I just we need make it really clear.
15:16
Speaker 1: The idea of a testamentary discretionary trust just to separate
15:21
Speaker 1: it from the fixedy ones which are left alone.
15:23
Speaker 2: Yeah. So a testamentary trust a discretion one that allows
15:28
Speaker 2: your executor or whoever runs the testamentary trust, after you've
15:32
Speaker 2: passed away, to decide where the income from the assets
15:35
Speaker 2: you've left to them, but have that income is distributed
15:38
Speaker 2: each year. Now, this was originally designed to make sure
15:42
Speaker 2: that it was designed in England to have a trust
15:45
Speaker 2: where if a further passed away and they left the
15:47
Speaker 2: money to their daughter, it was protecting it from the
15:50
Speaker 2: husband who've got most of the other assets. And the
15:53
Speaker 2: idea was that the daughter and her children would be
15:55
Speaker 2: taking care of no matter what happened. The money could
15:57
Speaker 2: be distributed down to the family using the fact that
16:01
Speaker 2: each member of that family that even under eighteen, could
16:04
Speaker 2: be treated as an adult for tax purposes.
16:07
Speaker 1: Which made it very abtractive of course. Yeah.
16:10
Speaker 2: So you know, for example, if there was a one
16:12
Speaker 2: hundred thousand income from the year and there's a widow
16:15
Speaker 2: and four children, each of them could be allocated twenty
16:18
Speaker 2: thousand a year, probably paying no tax at all. Okay,
16:21
Speaker 2: it was a great way to make sure that the
16:23
Speaker 2: next generation was taken care of an event of something
16:26
Speaker 2: going on.
16:27
Speaker 1: Yeah. Yeah, and that is that would seem to be
16:30
Speaker 1: canned basically. Yeah, So what do you think people would
16:35
Speaker 1: do in that situation?
16:37
Speaker 2: Well, I see a lot of it was again, a
16:39
Speaker 2: lot of it was done originally as a protection measure. So,
16:43
Speaker 2: and the problem is if you move to a fixed trust,
16:45
Speaker 2: testamentary trust, you're really taking that away because you're saying
16:48
Speaker 2: exactly how much each person gets, So.
16:51
Speaker 1: You sacrifice its discretionary powers, which is what was its
16:54
Speaker 1: great attraction.
16:55
Speaker 2: Yeah. So and like it was exactly you know, that
16:58
Speaker 2: ascid protection side of it.
17:00
Speaker 1: It's gone right right, Okay, So folks, you can see
17:05
Speaker 1: though though there's a lot of pollobloo around that issue.
17:07
Speaker 1: And is it a death tax or is it not
17:09
Speaker 1: a death tax? Well, and people say, oh, you know
17:12
Speaker 1: that's been you're winding that up. Here's how it works.
17:15
Speaker 1: You have to die to activate a testamentary discretionary trust.
17:20
Speaker 1: So I don't know what else to call it. Even
17:23
Speaker 1: though Treasury and the government have made very clear obviously
17:25
Speaker 1: that they don't want it termed in that fashion. Okay,
17:28
Speaker 1: put that to one side, leok, we were talking about
17:31
Speaker 1: the political reality. We have to talk about political reality
17:34
Speaker 1: because we don't want people to be running around making
17:38
Speaker 1: moves on the basis of legislation that might never happen.
17:43
Speaker 1: And if you recall in the super tax debate, there
17:45
Speaker 1: was similarly people getting great attention by saying, you know,
17:49
Speaker 1: oh my god, it's going to be on realized gains,
17:52
Speaker 1: and it didn't turn out to be in the end.
17:55
Speaker 1: I'm just wondering what you think might in the end
17:57
Speaker 1: be traded off here. I think let's just talk about
18:02
Speaker 1: the ones that are outstanding. The testamentary discretionary trust, for instance.
18:05
Speaker 1: Do you think there's any chance that they might repew
18:10
Speaker 1: that idea and leave them alone in the end.
18:13
Speaker 2: I think they may seriously consider it, because it's not
18:16
Speaker 2: only the fact that if they may need to work
18:19
Speaker 2: hard to get it through Parliament, but now you've got
18:21
Speaker 2: the whole legal fraternity are turning on them, and I'm
18:25
Speaker 2: sure there's going to be court cases, can be challenges
18:28
Speaker 2: so that the fine print is can be absolutely ripped apart.
18:31
Speaker 2: So this is one it's probably one easy one for
18:34
Speaker 2: the government to back off and say, look, we hadn't
18:36
Speaker 2: realized how much it would affect people that benefit from
18:40
Speaker 2: testamentary trusts. Family trusts are slightly different because that's when
18:43
Speaker 2: you're alive and you know that scene is sort of
18:47
Speaker 2: being unfair to people earning a normal money. But testamentary
18:50
Speaker 2: trusts were designed to protect beneficiaries in the long term.
18:54
Speaker 2: It's a totally different.
18:55
Speaker 1: It's a will is in the state's issue, and it
18:59
Speaker 1: shouldn't be put in the category of family trust which
19:03
Speaker 1: are fur those lucky enough to be alive and making plans. Okay,
19:07
Speaker 1: that's one thing. Capital gains tax. There's a little throwaway
19:11
Speaker 1: line in the budget that says that some aspects in
19:15
Speaker 1: relation to startup companies will get further consideration. I think
19:21
Speaker 1: there might be some room regal room there for some exemptions.
19:26
Speaker 2: Perhaps, Yeah, I think there has to be because basically,
19:29
Speaker 2: you know, you think in terms of they're saying they
19:31
Speaker 2: want people to be treated who earn money the same
19:35
Speaker 2: as people who have assets. But when you're talking in
19:39
Speaker 2: terms of a small business owner, you might buy a
19:41
Speaker 2: property for a million dollar as an individual investor, but
19:45
Speaker 2: for a small business owner, they may start a company
19:47
Speaker 2: and start a business with one hundred dollars and the
19:50
Speaker 2: inflation adjustment, it makes no change to that after ten years,
19:56
Speaker 2: even if they've grown the business. You had inflation two
19:59
Speaker 2: hundred dollars and you probably talking two hundred dollars as
20:01
Speaker 2: your cost place. And you may have built a big business,
20:04
Speaker 2: you've done your blood, sweating tears, you've sacrificed every low
20:07
Speaker 2: salary is probably no salary for the first five or
20:09
Speaker 2: six years, and so you end up with a huge
20:12
Speaker 2: capital gain when you go to sell the business.
20:14
Speaker 1: And you end up with a punitive tax rate that's
20:16
Speaker 1: kind of up the line with other tax rates.
20:18
Speaker 2: And there are small business concessions that the government come
20:21
Speaker 2: out yesterday saying, oh, there are generous concessions out there
20:24
Speaker 2: for people who've got less than six million dollars of
20:26
Speaker 2: assets or turnover less than two million, But those rules
20:29
Speaker 2: were set back in two thousand and seven, never in
20:32
Speaker 2: index link, never increased, and nowadays just you know, if
20:37
Speaker 2: you've got your business properly in your own but you
20:40
Speaker 2: know on your business probably that in Sydney that's probably
20:42
Speaker 2: going up towards you the four to five million anyway,
20:45
Speaker 2: so it's going to be very easy to go over
20:47
Speaker 2: those six million, and especially they're talking about new entrepreneurs
20:51
Speaker 2: bringing out new digital strategies and innovation. We've seen the
20:55
Speaker 2: prices that they go for and course, yeah, and also
20:59
Speaker 2: they a lot of those and a lot of those
21:02
Speaker 2: small business people. They entice experts into work with them
21:08
Speaker 2: on the basis that they're going to get some shares
21:10
Speaker 2: in the startup. It's going to make it. You're going
21:13
Speaker 2: to see more and more tech people going. I'm going
21:15
Speaker 2: to sit on one hundred and fifty to three hundred
21:17
Speaker 2: thousand dollars salary and I'm not going to take a
21:19
Speaker 2: chance to go with a startup or the startups will
21:22
Speaker 2: just go. Already talked to a few this week. We
21:24
Speaker 2: were talking about either moving to Dubai or New Zealand
21:27
Speaker 2: or Singapore.
21:28
Speaker 1: They're not compensated by the early stage investment company and
21:31
Speaker 1: exceptions or anything like that.
21:33
Speaker 2: There will be some, but they are fairly tough rules
21:37
Speaker 2: to fulfill.
21:38
Speaker 1: To fulfill. Yeah, not everybody is creating a tech company.
21:41
Speaker 1: As you say, Okay, the other one. I don't know
21:43
Speaker 1: how you come on this, but as I read it
21:45
Speaker 1: and we had it back again, I published this morning
21:48
Speaker 1: and I haven't had anyone on the line telling me
21:51
Speaker 1: I'm wrong with the next gearing rules because the rules
21:58
Speaker 1: cut off date is Budget Night, and arding in the
22:01
Speaker 1: budget papers is to the e fact that it covers
22:04
Speaker 1: all properties on Budget night owned then the way I
22:08
Speaker 1: read it, and I'm reading it obviously having talked to
22:11
Speaker 1: a variety of experts in the field who say the
22:13
Speaker 1: same thing. If I own my house, then on Budget Night,
22:18
Speaker 1: and if in five years time I decide to move
22:21
Speaker 1: somewhere else within Australia, I can take a second look
22:27
Speaker 1: at my old home no longer my primary residence. But
22:30
Speaker 1: let's say I still own it. Well, the law said
22:33
Speaker 1: you can negatively gear from that nice and that would
22:37
Speaker 1: mean I could negatively gear. I could be in the
22:39
Speaker 1: lucky you that are in the grandfather category. Is that
22:44
Speaker 1: you're reading of it?
22:46
Speaker 2: Yes, it's exactly my reading of it.
22:48
Speaker 1: Do you think that that one's going to get through partment?
22:51
Speaker 2: I think it will because it's too hard for them
22:53
Speaker 2: to try and work around it. So you know, it's
22:56
Speaker 2: bringing up strategies. Now that you're on your home, should
22:59
Speaker 2: you be paying extra payments or should you just put
23:04
Speaker 2: them in your offset account in case you do change houses,
23:08
Speaker 2: Because if it's in the offset of account. It's your
23:10
Speaker 2: money and the loan balance set standing, and that means
23:14
Speaker 2: that if it does become your investment property, all of
23:17
Speaker 2: that loan balance becomes negatively geared, whereas if you're making
23:21
Speaker 2: extra payments off the loan and they're going into redrow,
23:24
Speaker 2: you can only get a deduction for that redraw if
23:27
Speaker 2: it's used for investment purposes. So you're going to find
23:30
Speaker 2: a lot more people looking at using officet accounts, especially.
23:34
Speaker 2: We know for the older generation they're probably going to
23:36
Speaker 2: move three or four times in their life for work
23:39
Speaker 2: and everything, so it'll make more sense to just pay
23:42
Speaker 2: the principal interest, basic and any extra payments store them
23:46
Speaker 2: in the officet account, and then if you do go
23:48
Speaker 2: to move to another property, you'll use the offset money
23:51
Speaker 2: towards the purchase of new property, which will leave you
23:53
Speaker 2: with the maximum deductible loan on your own property.
23:58
Speaker 1: Keep that in mind, folks, your home will be your
24:01
Speaker 1: future investment property and you could negatively gear it. How
24:04
Speaker 1: about that you heard it here first, Well you certainly
24:06
Speaker 1: heard it here. We were among the first row where
24:07
Speaker 1: you've heard it. I would think, all right, we'll be
24:09
Speaker 1: back in a moment. I have a couple of questions.
24:11
Speaker 1: I've drawn from lots of questions this week as you
24:13
Speaker 1: can imagine, and there will be more on the budget
24:15
Speaker 1: back in a minute. Hello, Welcome back to the Australians
24:28
Speaker 1: Money Positive podcast. James Kirby here with Liam Short. I
24:31
Speaker 1: have some questions and there will be more, I'm sure
24:34
Speaker 1: send them in the Money Positive at the Australian dot
24:36
Speaker 1: com dot au. First one from Simon. Do you think
24:39
Speaker 1: the government could have avoided a lot of blowback by
24:42
Speaker 1: making this CGT discount thirty three percent like it is
24:46
Speaker 1: in super I think that would have been a splendid idea. Simon,
24:50
Speaker 1: what do you think? Liam?
24:52
Speaker 2: I think Treasury ran the figures that they found that
24:55
Speaker 2: they wouldn't have raised enough by doing that, And that's
24:58
Speaker 2: plain and simple. If they're going to make it big
25:00
Speaker 2: move like this, it had to be a bold one.
25:02
Speaker 2: Otherwise they were going to cup all the grief through
25:06
Speaker 2: little return.
25:07
Speaker 1: Yeah, it would seem to be their moment. It was
25:09
Speaker 1: their window, and boy, you gotta say whatever else you
25:11
Speaker 1: can say, they took their moment. They took their moment.
25:16
Speaker 1: They threw the kitchen sink at it and just about
25:19
Speaker 1: everything that's been rumored for about five years came to
25:23
Speaker 1: pass in one budget. All right, Josh Joshua. I previously
25:28
Speaker 1: looked at an investment bonds where your money is locked
25:31
Speaker 1: away for ten years and text internally thirty percent, what
25:35
Speaker 1: has no tax ad with roll? And now he says,
25:39
Speaker 1: now with the CG changes, I've started to consider it
25:42
Speaker 1: their potentially worthwhile. Yeah, Well, isn't it interesting that there
25:46
Speaker 1: was a big joint venture announced yesterday with Challenger and
25:50
Speaker 1: Generation Life and Colonial which is in this area, not exclusively,
25:56
Speaker 1: so what it's part of it? We've been very skeptic
25:59
Speaker 1: about it. Investment bonds on the show again and again.
26:02
Speaker 1: The readers and the listeners continually say, tell us about them,
26:07
Speaker 1: what's your view on them?
26:08
Speaker 2: Now they're even better option going forward. We've always used
26:12
Speaker 2: them as a stopcam between fifty five and sixty for
26:15
Speaker 2: people who wanted to retire younger, who are on a
26:17
Speaker 2: high income at the moment. It was a great way
26:20
Speaker 2: of locking money away for ten years and funding that
26:23
Speaker 2: period between fifty five and sixty O.
26:26
Speaker 1: Case, sorry, man, you must do it for ten years
26:28
Speaker 1: to opt to really, yes, thankful to.
26:30
Speaker 2: Get the optimal Yeah, So from years from year seven,
26:34
Speaker 2: eight nine onwards. The tax hit if you take it
26:36
Speaker 2: out early is less, but the optimal is keeping for
26:40
Speaker 2: ten years and then drip feed it out from there
26:42
Speaker 2: over the longer term.
26:44
Speaker 1: Right, Okay, it's interesting. I think you'll find that the
26:47
Speaker 1: investment bonds people will be advertising and promoting. They're not perfect, folks,
26:51
Speaker 1: but they are relatively more attractive than.
26:55
Speaker 2: And again James, it will be the focus on Frankie
26:59
Speaker 2: credit or income orientated returns inside those bonds now, because
27:03
Speaker 2: they're going to try and get that thirty percent tax
27:05
Speaker 2: bracketing that trusts are those investment bonds or tax internally,
27:09
Speaker 2: they are going to try and get that down as
27:11
Speaker 2: far as possible, whereas what we're talking about on the
27:13
Speaker 2: CTT or the trust distributions outside, they're talking minimum thirty
27:17
Speaker 2: percent plus. So the bonds will have their day.
27:21
Speaker 1: Okay, very interesting. We'll come back to that, and we'll
27:23
Speaker 1: come back to many other issues. And I'm sure, okay, folks,
27:27
Speaker 1: we are running out of time. I have to hold
27:29
Speaker 1: it there. We have lots more to talk about. Of course,
27:32
Speaker 1: we will take a look at some other issues going forward.
27:36
Speaker 1: I have never done so much on the budget, but
27:38
Speaker 1: then I've never seen a budget quite like it. Great
27:40
Speaker 1: to have you on the show today, Liam.
27:42
Speaker 2: Thank you very much. Shames always love it.
27:44
Speaker 1: That was Liam Short from the Sunnas Wealth Group. Okay
27:49
Speaker 1: some more correspondents. Love to hear your views, your questions,
27:53
Speaker 1: your complaints, your observations, the money puzzle at the Australian
27:56
Speaker 1: dot com dot Au. Today's show was produced by Lee
28:00
Speaker 1: A Sadly Talk to you soon.
28:08
Speaker 2: Sh