Welcome to the Autumn Edition of the BFG Report.
What’s out, now that the new Government is in ?
After winning office last year, Tony Abbott and the Coalition Government are determined to wind back a great number of Labor’s initiatives. In this report, we take a look at what they are doing with respect to personal finances.
The new tax rates that were proposed to change on 1 July 2015 under Labor are no longer going ahead. The proposed changes included an increase in the tax-free threshold, from $18,201 to $19,401. This would have been offset by increasing the 32.5 per cent tax rate to 33 per cent. Instead, under the new Government, the existing tax rates will remain as shown in the following table. From 1 July 2014, however, the Medicare levy will increase from 1.5 per cent to 2.0 per cent.
Marginal Tax Rate
$18,201 – $37,000
19.0% + Medicare Levy
$37,001 – $80,000
32.5% + Medicare Levy
$80,001 – $180,000
37.0% + Medicare Levy
$180,001 and over
45.0% + Medicare Levy
Tax on income within an account-based pension
Currently, account-based pensions are tax-free. One of Labor’s propositions was to apply a tax rate of 15 per cent to investment earnings over $100,000 in account-based pensions — just like super money in the accumulation phase. The Government has decided this is too much of an administrative burden and has stated that this proposal will not be implemented.
Low income super contribution tax offset
In 2012/13, anyone earning less than $37,000 was exempt from the 15 per cent contributions tax on their super guarantee (SG) contributions and salary sacrifice up to the value of $500. This low income super contribution offset was designed to ensure that those people weren’t paying more in contributions tax than they were in personal income tax. The Government has made it clear that this tax relief is set to be abolished.
Increases to super guarantee contributions
While Labor had legislated to increase SG contributions over the next seven years to 12 per cent, we are unlikely to see the SG rate go to 12 per cent before 2021. The current SG rate of 9.25 per cent is set to stay until 30 June 2016 and increase to 9.5 per cent from 1 July 2016 onwards.
There had been a proposal to cap self-education expenses at $2,000 pa. While this was primarily aimed at those going on unnecessary overseas conferences, it unwittingly caught some occupations where self-education expenses legitimately exceeded $2,000 pa (eg nursing). The Government has made it clear that this cap will not be implemented.
Sale of the family home
It had been proposed that, if you owned your home for more than 25 years and sold it whilst receiving the age pension, then $200,000 from the sale of your home would be exempt under the income and assets test. This proposal was never legislated and looks unlikely to become law.
Investment Market Review – Quarter Ending 31 January 2014
|Asset||Index||1 year return|
|5 year return % pa||Comments|
|Australian shares||S&P/ASX 300 Accumulation index||10.58||12.76||The market finished the quarter in the negative. Concerns over the reduction in the economic stimulus from the US Federal Reserve dominated markets over the quarter. All market sectors were in the negative with the exception of the Healthcare sector which posted a 1.18% gain. The interim reporting season gets underway in February 2014. The weeks preceding the commencement of this reporting period is known as pre-result ‘confession’ season when companies announce major earnings surprises ahead of the result. This year, the confession season was relatively quiet in January with Treasury Wine Estate being|
the standout and downgrading earnings guidance for the full year FY14.
|Listed property trusts||S&P/ASX 300 A-REIT index (property)||3.17||11.13||The A-REIT index was lower over the quarter but managed to claw back some of the losses towards the end of the quarter. The pickup in performance late in the quarter was due to lowering of the bond yields which made A-REIT returns appear more attractive to investors.|
|International shares||MSCI World accumulation index (AUD)||38.76||9.14||International shares returned 13.2% in Australian dollar terms over the quarter (as measured by the MSCI World ex Aust Index). The US share market was particularly strong, driven mainly by incrementally improving economic data. The Federal Reserve’s announcement about the tapering of quantitative easing didn’t result in a sell off — markets actually rallied post the announcement. Expectations for further economic improvement in 2014 coupled with consensus expectations for increased earnings growth from US corporates also contributed to the appreciation of the share market. Emerging market shares significantly lagged the US market, as has been the case over the past two year period.|
|Fixed interest and cash||UBS Warburg Comp. Bond All Maturities index||3.33||5.64||Fixed interest markets were volatile over the quarter, largely driven by Federal Reserve’s tapering in the US. Rate volatility is expected to continue over the quarter, as monetary policy diverges among the world’s central banks.|
|Cash||UBS Bank Bill index (interest rate earned on short term to maturity of approx 45 days)||2.82||3.96||The RBA left rates unchanged over the quarter, with above consensus inflation data appearing to rule out any further rate cuts. In the context of sub-trend domestic economic growth, this presents the RBA with an interesting dilemma.|
High Yielding Internet Savings Accounts
Financial Institution Interest Rate
RaboDirect – HISA 4.40% p.a.
ING Savings Maximiser 4.35% p.a.
BankWest – TeleNet Saver 4.30% p.a.
UBank – Usaver 4.26% p.a.
Rams Saver 4.11% p.a.
Citibank Online Saver 4.00% p.a.
Rates sourced from RateCity.com.au and are subject to conditions and change. Rates are correct as at 11/3/2014.