POST ELECTION WE HAVE ‘SOME’ NEW CERTAINTY
Every election is preceded by uncertainty during the campaigning of the parties then life gradually settles down again to a slightly adjusted status quo. Real estate is one of those things in life that thrives in certainty.
During one of the longest election campaigns Australia has experience we at Adelaide South Property genuinely found it difficult to comment on all of the toing and froing on the different policies of the parties. There were daily changes on some policies that made it too complicated to explain only to find they might be reversed within the next 24 hours news cycle.
There was so much talk about changing the rules behind Capital Gains Tax concessions, Negative Gearing and Superannuation such that it would be surprising if the average person knew where they stood now. At the risk of being over simplistic basically nothing changed except for Superannuation.
Superannuation is one of those policies close to the heart of any investor which can only now be commented on with any confidence.
There were also adjustments to the Age Pension assets test threshold for the full and part pension. From the January 2017 a single person will only qualify for a full pension if they have up to $250,000 in assets (including super and other assets but excluding the family home) and for a couple less than $375,000 assets. Any entitlement for a part pension will phase out with $547,000 in assets for a single person (including super and other assets but excluding the family home) or $823,000 for a couple.
The lower thresholds for entitlement to the full pension have risen, which is great, but the upper threshold for any entitlement to a part pension has dropped significantly from the previous $790,000 in assets for singles down to $547,000 and from $1,175,000 to $823,000 for couples.
These are significant figures that become yet another variable for those trying to plan for retirement. The constant changing rules are what frustrate retirees at a time of life when they have very limited ability to alter their income. Retirees therefore become even more dependent on those in power who make the laws and so become a powerful political block. Woe to the government that ignores them.
Changes to Superannuation Rules
Some good aspects will continue in slightly varied forms such as the contribution concessions for low income earners and there is some tinkering of many features but some of the big changes includes the following;
- The cap on super contributions that attract the concessional tax rate of 15% is to be reduced to $25,000. This cap will no longer be indexed.
- On 15/9/16 the government announced, after much pressure, the abolition of the controversial introduction of a $500,000 lifetime cap for non-concessional (after-tax) superannuation contributions. As a compromise the limit of $180,000 per annum contribution for up to 3 years will be reduced to $100,000 per annum for up to 3 years. This announcement has been a major relief especially for those looking to invest the proceeds of the sale of property or for those receiving an inheritance.
- The high income earner concessional contribution tax rate of 30% now applies to incomes of $250,000 in place of $300,000 previously.
- From 1 July 2017 the government will remove the tax exempt status of earnings that support the transition to retirement income stream (TRIS).
- From 1 July 2017, earnings on the assets supporting the TRIS will be taxed at 15%.
This is only a basic summary of what will change but includes the big ticket items. The full impact on those with a TRIS is probably not yet fully understood but will be a cause for concern.
Governments continue to see Superannuation, Capital Gains Tax and Negative Gearing as cash cows to be milked when the public coffers are running low and it is up to every one of us to remain vigilant to guard our best interests by supporting those parties who are like minded.
The Wider Economy
The bigger questions about the economy are also still running, of course. There are reasonable optimist forecasts which are conditional upon getting the basics right such as the necessity of driving down the deficit. We will however continue to have major disagreements between the parties over the best way to kick start the economy. Is spending $50 billion on tax cuts for big business the best use of the country’s limited resources?
But Labor says they will support the first stage of these tax cuts starting with the reduction of the company tax rate to 27.5% for businesses with a turnover of less than $2million.
Real Estate remains a significant part of our economy and for the moment the Reserve Bank continues to use the blunt sword of interest rates to control them both. The cash rate for interest has remained at a record low of 1.5% for the second month. Many think we could expect one more drop of 25 basis points (0.25%) before the end of the year. Lowing interest rates can be used to kick start the wider economy but it can have the effect of overheating the real estate market to unsustainable levels.
Only time will tell how well the balancing act will work.
Adelaide South Property will continue to bring economic news of interest to investors and will raise alarm bells as we see the bureaucrats looking for easy money.