Property and CGT
Bruce Brammall and many others keep using capital gains tax in their discussion on how to invest in property (for example, see Bruce’s latest article, A single pot strategy). A sound, well-located property is too valuable to sell – its value (sale and rent) will just keep increasing over time. What investors should consider is just increasing the mortgage as money is needed and increasing the rent to keep paying the mortgage off. Use other people’s money to live well.
Paid parental leave
The majority of higher education for young women is financed by the public purse. It is therefore proper that the community get the benefit of their higher skill levels in the work force. They are more likely to remain attached to the work force (and thus return to it) if they are granted half pay at their own skill level while they look after their new babies. Surely it contributes to the productivity level of the entire work force if these higher skills are included? And surely retirees have received sufficient financial advantage already and do not need to begrudge this improvement to productivity? Please, think of the benefits of no tax on superannuation pensions, of the reimbursement of franking credits in cash for SMSFs, of the ability of retirees to claim age pension benefits while they have rather considerable assets?
It actually sounds mean to me, to complain about the lower franking benefits available to retirees.
Levy and franking credits
Comments on the impact of company tax reductions being replaced by the paid parental leave levy are somewhat excessive, particularly given the tax-free nature of pension payments to a self-funded retiree such as myself. For example, with Commonwealth Bank of Australia (CBA) the change would reduce the most recent dividend and franking credit income by 6 cents per share. CBA will, however, have some reduction in costs as their existing maternity scheme is replaced i.e. some profit increase. Also commentary generally expects better economic times if the Coalition wins the election, which presumably leads to better profits and thus higher dividends. Given that a 2% increase in dividend would cover the loss of income from the reduction in franking credits, one could anticipate that any fall in income to a retiree would be significantly less than portrayed. Also small cap companies favoured by Alan Kohler may not attract the levy, leaving increased NPAT and (hopefully) greater benefit to shareholders.
Franking credits and paid parental leave
There is only one reason franking credits could be reduced and that is because company tax is reduced. Nothing to do with paid parental leave. If company tax is reduced then tax credits are reduced by 28.5% of 1.5% and profits are increased by a full 1.5%. This probably allows an increased dividend not a reduction.
Coalition and franking credits
There has been much discussion about the Coalition’s tax on Australia's "biggest" companies to fund the parental leave. They discuss investing in the "smaller" companies that are not to be caught by the new tax. This new tax hits any company that has a taxable income in excess of $5 million. Those are not "big" companies. I would suggest that this tax will hit all but the stock market minnows. To consider changing one's portfolio mix to focus on these minnows does not seem like a realistic exercise.
Coalition parental leave scheme
I find it unbelievable that so-called self-funded retirees are complaining about the Coalition's Parental Leave Scheme, a scheme which will assist their children/grandchildren.
Their complaint is that as a result of this scheme a reduction in franking credits will leave them a couple of hundred dollars a year out of pocket. This is yet to be proven but does not stop these rent seekers complaining.
This is a group of people who will have their super in the pension phase with the fund paying no tax on its income and paying out a tax free pension. When they get to 65 they will then qualify for the Federal Government Health Card which will give them greatly reduced costs on pharmaceuticals.
Talk about a selfish lot!
Searching for reason
Using the example posed by Scott Francis in his article, Coalition franking cuts to bite, a retired non-tax paying investor would receive $14.40 per week less in income. That is 1.5% of the $50,000 dividends. Surely a person with $1 million in Australian equities would also own their own home and have other financial assets, which could reasonably, be worth around $2 million at a minimum. Moreover, to recoup the 1.5% reduced dividends, the valuation of the investor's portfolio would only need to increase by 0.075% more than it would have, due to the Coalition's pro-active business plans such as getting rid of the carbon tax to cover the lost income. Let's be reasonable about this issue and not make it out to be some big deal that it isn't!
Australia's top yield stocks
In Tom Elliott’s article, Australia's top yield stocks, could he clarify that by Sydney Airport Corp he means ASX-listed Sydney Airport (SYD)?
Tom’s response: Thanks for your letter. Yes, that's correct. Sydney Airport (SYD) is one of my top infrastructure picks.
Small cap investing
Are there any small cap funds to invest in to spread risk? Is so, how do I invest in them?
Brendon’s response: Thanks for your letter. Exchange-traded funds are one of the easiest ways for retail investors to gain exposure to a basket of small cap companies. Those available to Australian investors include the iShares S&P ASX Small Ordinaries (ISO) and the Vanguard MSCI Australian Small Companies Index ETF (VSO), although I would advise consulting with a financial adviser before making any investment decisions.