There are no great surprises in this year’s budget for Australia, with the treasurer Jim Chalmers claiming it is a solid and sensible budget. That is probably a good thing, considering the backdrop of inflation, rising interest rates and high energy prices for most of the country. The budget deficit was much lower than expected. The deficit will be approximately $36.9 billion due to windfall gains from commodity prices.
Cryptocurrencies will now be taxed as an asset rather than a currency. This will soon be enshrined in tax law and means if you make a profit when you sell or when you exchange it with others, you will need to pay capital gains tax. The 50% capital gains discount will apply if you have held the asset for longer than 12 months. Individuals will also be able to offset any losses against other assessable income.
Some countries and other jurisdictions like El Salvador have made the ‘currency’ legal tender. These rules do not apply, and they are treated like other fiat currencies, whereas many western countries are now treating and taxing cryptocurrencies like assets.
Interestingly there was some messaging for the first time around government-issued Central Bank Digital Currencies. It stated that in the future, these would continue to be taxed as foreign currency.
This scheme must have been popular (with older voters)! Just a few months after the eligibility of the Downsizer Contribution was reduced from an age of 65 to 60, the government has reduced it again from 60 to 55. This will take effect as soon as it is written into law.
Labor has stated it is a move designed to free up houses for younger people and families. This is true. However, it will also boost people’s Super balances and reduce the amount of age pension the government has to pay.
The Downsizer Contribution is available if you sell your Australian primary residence that you have occupied for more than ten years. This allows you (and your spouse) to contribute up to $300,000 each from the proceeds of the sale into your Super, with no obligation to purchase a new home. Importantly, this is in addition to your concessional and non-concessional contribution caps. There are other eligibility requirements, which you can see here, or watch this Nucleus Wealth Empower episode for an overview.
Commonwealth Seniors Health Card
Labor has delivered on its election promise to lift the income thresholds for the Commonwealth Seniors Health Card. This will benefit approximately 45,000 wealthy older Australians that are not currently eligible for the pension. This change now allows singles with effective assets of $4.0 million outside of their exempt family home (increased from $2.3 million) to now qualify for the range of concessions and benefits. Couples can now have $6.5million outside their exempt family home (increased from $4.0 million). I wrote in detail about these changes here earlier in the year if you want the full picture.
Off-market share buybacks
A controversial and unforeseen change is Labor’s announcement regarding the tax treatment of off-market share buybacks that listed companies undertake.
The government stated it intends to ‘improve the integrity of the tax system’ by aligning the tax treatment of off-market share buybacks with the treatment of on-market buybacks. The share buyback amount will now be considered capital proceeds for capital gains tax purposes, as opposed to a portion being considered as a franked dividend.
This difference in tax treatment has seen listed companies engage in this practice. They buy back shares at a lower price than the market price (on-market buybacks) to make it a more attractive deal for selling shareholders who benefit from the franking credit refunds. This previously boosted the post-tax returns of the investment. This change will mainly affect Superannuitants (more so investors in pension phase) and investors on low marginal tax rates that benefit from the refund of franking credits.
This change is expected to raise $550 million over the coming four years. This is a significant sum, and it can be argued it is in line with Labor’s 2019 campaign against franking credits.
Another year, another budget. We will be sure to keep you up to date on current investment trends and events.