Well it is already April – who would have thought that the first three (3) months of the year would have gone by so fast! These months have been marked by a number of different economic factors, political policy announcements and uncertainties, all of which have or will affect the economy and our clients to varying degrees. Some of these factors which have affected our clients are as follows:

THE BIG CHANGES TO NEGATIVE GEARING / PROPERTY IN SUPER

As of last Friday, 29 March, we now know what future changes to negative gearing might look like should we have a change in government. Chris Bowen announced, ahead of the Federal Budget, that the cut-off date for Labor’s plan for changes to negative gearing and changes to capital gains tax from 50% to 25% is 1 January 2020.

In addition to this, Labor has announced that it will prohibit SMSFs purchasing property after 1 January 2020 although it is confirmed that CGT on superfunds will remain at 33.3%.

What does this mean for you?

1. From 1 January 2020, any negative gearing will only be allowed on new residential property purchases and not second-hand residential property purchases after this date.
2. Labor have confirmed that they will grandfather negative gearing arrangements for all properties before 1 January 2020 as well as allow a 50% CGT discount on properties purchased before 1 January 2020.
3. Although it will be business as normal for existing investors, there is a concern that future property prices will drop because of the limited market which will exist for current or future investors selling their property. This is of some concern.
4. If you are looking to restructure properties into different entities and different ownership percentages, there is now a sense of urgency in attending to this before the end of the calendar year.
5. If you have a current borrowing arrangement in your superfund, you may need to consider a change in structure, particularly if banks withdraw from funding superfund loans.

BANKING ROYAL COMMISSION

At a practical level, we have seen a marked downturn in clients who have been able to obtain loans. For those who have recently applied for loans, it appears that the list of requirements in obtaining a loan has grown substantially compared to previous years. I am often hearing from clients that it is taking between 4-6 months to obtain finance with the lending requirements becoming so strict that some clients have given up trying to obtain finance.

The strange thing is that because the banks have tightened up the lending requirements so much so that they now do not have any loans to process! So I hear that if you do apply for a loan, now is the time to at least try.

UPCOMING FEDERAL ELECTION

With recent state elections in Victoria and NSW drawing the boundary lines for the federal election, our business clients will also be effected if there is a change in government. Some examples include the following:

1. Labor policy to significantly increase the minimum wage
2. Liberal policy to further reduce the company tax rate to 25% in coming tax years
3. Liberal policy to change the top tax bracket in the coming years so that tax payers would not pay the top marginal tax rate until their taxable income exceeded $200,000 along with a flat tax rate for most taxpayers of 34.5% (including 2% Medicare Levy) between $41,000 and $200,000

There is certainly a lot to consider if you are in business as well as Labor has announced that they will repeal some of the tax changes if they are elected.

CONSTRUCTION INDUSTRY

With significant changes to lending practice and changes to tax law, it appears that we may have a construction downturn in the housing sector in the coming years. As we have many clients in the building industry, this isn’t positive news. However, from the feedback I have received from clients thus far, there hasn’t been any significant downturn yet.

BUDGET UPDATE & TAX PLANNING

As this financial year is shaping up to have significant changes, I suggest that we schedule in additional time in our tax planning meetings this year to discuss possible tax ramifications for changes in tax policy.

I would also like to invite you our annual Budget Update webinar at 1:00pm AEDT on Friday, 5 April 2019. I would love for you to attend this webinar as I am sure that there will be many proposed changes put forward by the Liberal government with the election just around the corner.