Are you part of the 4% or 96% impacted by franking credits? Did you know that on average, retirees would need to boost their superannuation balance at the age of 65 by 8% to 9% to make up for not being able to claim franking credits in retirement? Dividend imputation delivers considerable value to retirees. These aren’t super wealthy people – they don’t have an easy way to make up the difference.
Capital Gains Tax
Labor has proposed to halve the capital gains discount from 50% to 25% for assets held for greater than 12 months. The after-tax return benefits from holding on to an investment until the 12 month mark to get the bigger tax discount won’t be available from 2019/2020 if elected on Saturday. This equates to a loss of capital. In a practical sense, that loss of capital means funding your retirement just got tougher. How can you make up the short fall?
Since this CGT discount was introduced in 1999 it has been a significant factor causing people to hold onto assets longer than they would have. Now the discount is reduced, we will see a new behavioural pattern form – we think it will result in a change in investment velocity. The old adage is now more important: don’t let the tax tail wag the investment dog.
Whether current gains are grandfathered or not doesn’t really matter. Soon enough you are going to need to exit a stock and transition to a new investment. People will stop hanging on for the tax benefit and will need to do something different to replace the loss of capital via higher tax impost.
The question is how to make up the short fall. Pythagoras Investing assists people to invest when time is short and knowledge about investing in shorter cycles is lacking. Why would an investor wait for a discount when effort would be better spent on finding how to replace the loss of capital.
Want to know how can you make up the shortfall? … add some short term investing into your investment armory to capture the changes in share price behaviour. Pythagoras Investing gains by investing in shorter cycles without being dependent on CGT discounts – and its all done using maths.
Contact Michael to have a discussion about a trial or register at www.pythagorasinvesting.com/trial-pythagoras/
Disclaimer: The information in this document (“Information”) is not intended to constitute advice. It is for general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and seek professional financial advice before relying on or making investment decisions based on the Information. Investment products are subject to risk including the loss of income or capital invested. Past performance is not an indicator of future performance. Neither Pythagoras Investment Timing Index Pty Ltd ACN 147371113 (AFSL 431 238), its directors, employees and representatives (collectively, “Pythagoras”) warrant the accuracy or completeness of the Information. To the extent permitted by law, Pythagoras disclaims all responsibility and liability for any loss or damage of any nature whatsoever which may be suffered by any person directly or indirectly.