It was Bill Shorten’s and the Labor Party’s election to lose, and they’ve managed to achieve this with flying colours. Scott Morrison and the Coalition have managed to retain power and will lead Australia for the next political term. In this week’s article, we explore some of the key policy differences between the two parties and what it means when considering your property investment and financing strategies as an Australian expat or resident.
We’ve broken down the key areas where there are the greatest policy differences between the parties, to highlight the possible impacts and what it could mean for you.
- Concessional contributions cap to be retained
The cap on concessional contributions into superannuation, i.e. tax deductible contributions, is currently $25,000 per annum, and the Labor party indicated that they had no intention of changing this. However, from the 2019/20 financial year onwards, if you have a superannuation account/s with a combined balance of $500,000 or less, you could accumulate your concessional contribution limit over up to a 5 year period of time, which would allow you to make up to a A$125,000 contribution and claim this tax deduction. This is quite significant, particularly if you’re looking at selling investment properties, reducing your mortgage balances and are concerned about how to offset your tax liabilities.
- Concessional contributions to remain tax deductible
The current rules allow you to make up to a $25,000 per annum concessional contribution and claim this as a tax deduction. For those working in Australia, this will largely be via a salary contribution and superannuation guarantee employer contributions. Labor did not announce any changes to this particular treatment, however, they did want to re-introduce the 10% rule, which means an individual could only make a concessional contribution if no more than 10% of their assessable income was derived in the form of wages or salary payments. The Coalition removed this rule to assist people, particularly where their employer may not offer salary sacrifice options for example. Again, when considering your options to reduce tax exposure from positively geared properties for example, this is a positive development.
- Non-Concessional contribution cap to remain the same
The non-concessional contribution cap is A$100,000 per year under the current rules and the Coalition have announced no changes to this. The 3-year bring-forward rule allows for a maximum contribution of up to A$300,000, providing that your combined superannuation balance is no more than A$1.4M. The Labor party highlighted that they wanted to reduce the non-concessional contribution cap to just A$75,000 per year, which would have in turn reduced the maximum contribution to just A$225,000 under the bring-forward provision.
- Borrowing for SMSFS to remain possible
Currently, self-managed superannuation funds (SMSFs), are able to borrow money, under quite strict guidelines, to allow them to purchase investment properties. The Labor party announced that they wanted to abolish this rule, and remove the ability of SMSFs to borrow for this purpose, but would grandfather those with a set-up for this already in place. This is positive news for those looking to purchase an investment property within your superannuation fund as you will retain the ability to borrow funds for such a purpose.
- Franking credits to retain current treatment
Franking credits can be a particularly attractive tool for those looking to structure their retirement income, or a portion of it, via Australian fully-franked dividend paying shares. The current rules allow for those who are paying a tax rate of 0% or less than the corporate tax rate could continue to receive a cash refund via franking credits. The Labor party announced that they would abolish any cash refunds of franking credits, which could have been quite a devastating change for many.
The potential change here under the Labor party could have meant that those with investment properties and taxable rental income could have still utilised franking credits to offset their tax liability, which outlines the importance of diversification.
- Negative gearing to be retained
Negative gearing allows Australian investment property owners to claim deductions for the costs of the property and offset other Australian taxable income. The Labor party announced that they would be abolishing this for existing properties, and limiting the negative gearing treatment to new properties only purchased after 1 January 2020. This is positive news for those looking to accumulate investment properties in Australia, particularly if you’re not looking to buy new properties.
- CGT discount to remain at 50%
The Capital Gains Tax (CGT) rules that are currently in place mean that if you’re an Australian tax resident and hold a taxable asset for more than 12 months, you can receive a 50% discount on the capital gain. For example, if you purchase an investment property for $1.5M, and sold it 5 years later for $3.0M, then you would only be liable for tax on 50% of the gain, or $750,000, as you’d held the asset for more than 12 months. The Labor Party announced that they would change this discount to just 25%, which would have had a significant impact on those with large unrealised capital gains.
Overall, the 2019 Australian election outcome is great news for both Australian expats and residents when it comes to both property investment and borrowing.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
Book an obligation-free, complimentary consultation here today.
LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.