Your Financial Questions, Answered: March '19


March has been a big month when it comes to changes that may have an impact on your financial world.

As your team of expert financial professional, we thought we’d break down these changes – both proposed and realised – and provide you with an overview of what they may mean for your financial world.

This Q&A covers the following topics:

  1. The Australian property slump
  2. Labor’s proposed franking credit policy
  3. Price increases for income protection premiums

The Australian Property Slump

There has been a lot of buzz in the Australian media recently surrounding the falling prices of property in many of our major cities. According to the Australian Bureau of Statistics’ Residential Property Price Index, prices fell 5.1 per cent on average across Australia in the whole of 2018, with home prices in the capital cities falling by 2.4 per cent on average in the three months to December.

As expected, this drop in the December quarter was worst in Sydney, with a fall of 3.7 per cent, and Melbourne, with a 2.4 per cent fall. Brisbane fell by 1.1 per cent. However, both Sydney and Melbourne have experienced unprecedented growth in the last 5 years, with the median dwelling price increasing in Sydney by up to 70% and in Melbourne by 41.5%. This drop, then, could be considered a return to normalcy after an unsustainable property bubble burst.

There has also been an increase in the number of houses for sale since January 2018, with Melbourne experiencing a significant 42% increase and Sydney following behind at 22%. On the other hand, Brisbane has only seen an 8% increase in the number of houses on the market. This equates to roughly 31,000 homes for sale across Brisbane. But while there are more homes for sale in Brisbane, Queensland led the nation in net interstate migration over the past year. This means that vacancy rates are on track to fall as the population increase fills those empty homes.

Your Property Questions Answered

  • Q - I’m looking to buy my family home (or principal place of residence) soon, should I be worried?

    Like many aspects of your financial world, the answer to this question isn’t as simple as yes or no.

    At My Wealth Solutions, we believe that owning a property that you live in should be seen as a lifestyle asset, rather than strictly an investment. While it’s important to buy property in an area that will experience growth, what’s more important for your family home is it satisfying the requirements for your preferred lifestyle whilst fitting in with your budget.

    With this in mind, buying a home as a lifestyle asset may generally always be seen as a good idea. But if you’re concerned about what the property slump may mean for your particular financial world, your financial advisor will be able to assess your situation and design a way forward.

  • Q - I have an investment apartment. What should I do?

    Don’t panic! According to a report by independent consultant firm Urbis, the number of apartments sold in Brisbane in the three months to October in 2018 has been the highest number sold since December 2016.

    Relatively stable apartment prices, tightening vacancy rates and comparatively strong yields have been important factors in securing the investment viability of the inner-Brisbane apartment market.

    If you’d like a thorough overview of exactly how your investment apartment is performing and how it helps you achieve your financial goals, don’t hesitate to contact your dedicated financial advisor.

Labor’s Proposed Franking Credits Policy

First introduced by the Hawke government in 1987, the divided imputation system – also known interchangeably as franking credits – was created to stop the profits of Australian companies being taxed twice: first at the corporate rate and then at the shareholder level after being distributed as dividends. The solution was to attach “imputed” credits to dividends, which were equal to the amount of tax already paid by the company on these dividends. These credits could then be used to offset an individual’s tax bill – reducing that bill to zero if possible.

In 2001, the Howard government took this system to the next level by allowing individuals and superannuation funds to claim any credits that exceed their tax obligations as a cash refund from the government. This means that individuals or super funds that currently pay no tax but receive imputed dividends are entitled to a cash refund.

If Labor wins the next federal election, they have proposed to abolish this policy of cash refunds for individuals and superannuation funds. However – after initial backlash when the policy was first announced – this reversal would not apply to those receiving a government pension or other allowance.

But it’s important to keep in mind that Labor’s changes to franking credits are only proposals at this stage – nothing has been set in stone. If these proposals become law, your dedicated financial advisor will be by your side to reassess your situation and design a new strategy to help you achieve your financial goals. 

Your Franking Credits Questions Answered

  • Q - I’m a self-funded retiree with an SMSF. How is this policy going to affect me?

    Labor’s proposed changes to the franking credits system is likely to affect you the most. If your SMSF is currently in pension mode and you pay no tax, you will not be able to claim a cash refund through your franking credits under Labor’s new policy.

    But it’s important to remember that this policy change will only apply to you if neither you or your partner receives a government pension.

    If Labor wins the next election – and it’s not a given that they will – your financial advisor can help you reassess and design a new strategy that ensures you’ll be able to continue living your preferred retirement lifestyle.

  • Q - My partner receives a government pension but I don’t. What does this policy mean for us?

    If you have an SMSF and either you or your partner started receiving a pension or other form of government allowance before March 28, 2018 you will not be affected by these changes and will continue to be able to claim cash franking credits.

    However, for future retirees and/or those who have yet to claim a government pension, Labor’s proposed policy would prevent you from claiming a cash refund for franking credits.

    Of course this proposed policy will affect each member of our community differently. That’s why it’s important not to panic: your financial advisor is here to help you review and reassess your retirement to make sure you’re on track.

Income Protection Premium Price Increase

Due to an overall rise in costs across the personal protection sector, a number of banks and financial institutions have announced increases in premiums on a number of their income protection policies. The two income protection providers implementing this change most of note are CommInsure and BT.

Both providers have said that the premium price increases are the result of higher-than-expected number of claims in the last few years, alongside a continuing low interest rate investment environment.

According to data from BT, the number of income protection claims is up by 13% from 2,369 in the 2017 financial year, compared to 2,714 in the 2018 financial year. Similarly, the amount of benefits paid for income protection claims has also risen, from 80 million in 2017 to $97 million in 2018.

Both CommInsure and BT have implemented the increase in premium price in an effort to ensure they are able to continue protecting your financial wellbeing, while they also bring themselves in line with the rest of the personal protection sector.

Income protection forms an essential cornerstone of your financial plan as it protects your biggest asset: your ability to earn. An increase in premium prices doesn’t have to mean losing this essential financial protection. That’s why your financial advisor will work with you to reassess your situation in light of these changes, and help you to decide on the right cover for your unique financial situation.

Remember: expert advice and guidance on every aspect of your financial world is only an email or phone call away.


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