Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 306

Cuffelinks Firstlinks Edition 306

Welcome to the Firstlinks Newsletter Edition 306
Graham Hand

Graham Hand


We start our final election coverage with a reprise of Mark Ellem's article explaining the differences in investing and superannuation policies of the two major parties. Then we move on to fresh insights into Labor's proposals:

Colin Lewis explains why the extra contributions tax will impact more people than is commonly understood. Do you know how to calculate the cost?

Tony Dillon says members in pension phase should not assume the trustees of large funds will refund excess franking credits, and he quantifies the impact of the policy on capital gains tax.

Rodney Brown believes the loss of franking credit refunds may increase corporate tax evasion.

* Finally, we bring together seven strategies to manage the impact of the loss of franking credits.

(There are no new Coalition superannuation policies proposed in the election campaign).

Regardless of whether you are for or against the basic principle of Labor's franking policy, it's a strange outcome when wealthier people are not affected. Trustees with large, diversified SMSF portfolios where the amount in accumulation will always exceed the pension tranche can use the credits to pay tax. I also have a friend who is a tenured university academic with healthy retirement savings held by Unisuper. Their website says: "Based on our current understanding, we expect to continue to use franking credits to offset our income tax liability." 

These people, including myself, are unlikely to be adversely affected, yet Labor's motivation is 'fairness' and a move against 'the top end of town'. Meanwhile, a Centrelink pensioner who established an SMSF in the last year loses the franking refund. It's likely the policy will not survive in its current form in the face of Senate opposition. Expect a minimum allowed refund of say $5,000 to satisfy the cross-benchers, which will dent the number at the top of this list.  

 


When Cuffelinks surveyed its readers on franking credits, over half the 2,000 respondents said they would change investments or super structure if Labor's policy is adopted.

Implementation of these policies has major consequences for the budget as the revenues finance new spending on cancer treatments, child care, dental care and infrastructure. By 2030, franking credit refunds alone are worth $7 billion a year.

If it's correct that industry funds will not be affected, their power will multiply across all sectors. For example, within five years, AustralianSuper expects its funds under management to double to $300 billion, and it will bring more management in-house to reduce its costs.

Moving right along ...

If you're tired of the election coverage (and yes, franking credits), let's check some research on ways to drive better investment outcomes.

Jack Gray and Steven Hall describe 10 'rules of thumb' often used by professionals to help make decisions during uncertain times.

Shane Shepherd explores with David Laibson how investors make irrational decisions, and changing their environment can be more effective than changing their behaviour.

Michael Collins looks at the ethical issues of Artificial Intelligence, or AI. We're only just starting to appreciate the consequences while AI is off and running. We're all being watched.

This week's White Paper below is a review of global ETFs from BetaShares, showing good growth while 'mutual funds' face outflows, and the rising popularity of fixed income ETFs. In Australia, the sector is close to $50 billion, a doubling in only two-and-a-half years.

The 'Additional features' section below carries a wide range of reports on hybrids, ETFs and LICs.

Congratulations to Sydney-based Andy Kuper of Leapfrog Investments, who recently closed the largest ever private equity fund by a dedicated impact fund manager. The $1 billion raising will invest in healthcare and financial services to reach 230 million people in emerging markets.

Graham Hand, Managing Editor

 

For a PDF version of this week’s newsletter articles, click here.

 


 

Leave a Comment:

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.