May 10

A Few Investment-Related Budget Outcomes

As expected the Federal Budget focused on a surplus and to the government’s credit is looking to distribute some of their mining profits to the not so wealthy. Whilst the opposition is suggesting that some of the cash payments will be going straight to retailers instead of their intended purpose, that’s not necessarily a bad thing given the current weak state of retail…although overseas online retail would not be a good result.

Anyway, following is a summary of some of the investment-related impacts the budget may deliver.

  • The forecast budget surplus opens the way for the Reserve Bank to continue reducing interest rates. With 1 year and 2 year Australian Government Bond Yields at 2.92% and 2.68% respectively, the bond market is expecting the cash rate to be much lower.
  • Higher superannuation contributions tax and other superannuation reductions will increase revenue for government but will reduce investible dollars for the superannuation industry. Impact on markets should be relatively negligible.
  • The government’s decision to remove the previously promised reduction in the corporate tax rate from 30% to 29% is also expected to have negligible impact on markets.
  • Aside from interest rates, the biggest specific investment-related impacts from the budget are in the areas of property and certain gearing related investment…
    • From 1 July 2012, the withholding tax rate on managed investment trusts will double to 15% and will impact non-resident’s investments in property and infrastructure trusts. This may have negative consequences for those trusts reliant upon foreign investors.
    • Non resident investors will no longer have the 50 per cent capital gains tax (CGT) discount for on capital gains accrued after 8 May 2012. This impacts non-resident individuals with Australian property and will possibly impact off-the-plan investment property which does rely on a degree of foreign investment.
    • The plan to offer tax offsets against environmentally friendly buildings is no longer.
    • Finally, the government intends to scrap deductions for assets where the taxpayer is not effectively at risk. This may impact investors who gear into capital protected products or structured products) if the interest is no longer tax-deductible.
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