Equity markets around the world have been volatile of late, and whenever this happens, investors naturally look for explanations for the downturn and wonder whether they’re in the right investments. We believe this response to volatility, although natural, is likely unhelpful. Instead, you are better served by putting recent market movements into the context of what’s important to you in the long term. For example, looking back a decade to the massive market decline of 2008, consider this question: Would you be closer to meeting your long term financial goals by having sold out of equities after double-digit losses only to miss the rebound and one of the longest bull markets in history?  Putting market volatility into context is a much better way to react than trying to understand every market move or selling at the wrong time to quiet fears.

Reserve Bank of Australia - facade


Key Takeaways

  • Predicting how macro-economic issues will work out or how they’ll affect markets is next to impossible.
  • Volatility can be upsetting, but selling after significant losses can be counterproductive.
  • We believe valuations, not volatility are the key to portfolio reallocation, although sometimes high volatility may open up attractive valuation-driven purchases.

The good old days seem to be quickly sliding into the past. As recently as a year ago, markets were on a joyride. Ever higher returns pushed painful memories of the Global Financial Crisis (GFC) further and further into the background. The fear index, also known as the VIX or more formally the CBOE Volatility Index, rises during periods of market stress. But in 2017, the VIX couldn’t have been less scary, as it set record lows amid a seemingly ever rising market. In fact, from January 1990 through December 2016, the VIX fell below 10 on nine days (nine days in 27 years!) but in 2017 it sat below 10 for 52 days so calm were the markets.

Xi Jinping - Trump

Volatility has clearly returned to markets in 2018. Earlier in the year, fears of rising interest rates and multiple trade conflicts set the market on edge. Many investors continued to have confidence in leading growth stocks for much of the year until threats of stiffer regulations and the failure of a few internet darlings to live up to lofty expectations caused a dramatic rethinking of their worth. In addition, markets have had to wrestle with slowing economic growth in China, the possible end of Quantitative Easing (printing money) by the European Central Bank, volatility caused by the US midterm elections and property prices crashing here in Australia. If balancing all those risks to form a better forecast of how they’ll play out or affect markets seems like a tough job, we couldn’t agree more. Clearly it’s hard to predict these issues in isolation. But in reality, these issues interact and evolve, and people react to them along the way, thus multiplying complexity and making outcome predictions next to impossible. No investor can consistently know how today’s concerns might affect markets in the future. Some current examples of this are:

  • The US-China trade wars and tariffs,
  • Interest rate increases by the US Federal Reserve in response to strong economic growth,
  • The unresolved UK Brexit and political turmoil in Europe,
  • Australia’s possible change of Government in May to Labor and proposed cuts to tax benefits, including the removal of excess franking credit refunds and the reduction of tax deductions for negative gearing,
  • The Reserve Bank of Australia keeping interest rates at the historically low level of 1.50% for over two years,
  • Restrictions on investor and interest-only loans by APRA and Banks curtailing lending,
  • Property prices falling significantly in Sydney, Melb, Perth and Darwin,
  • Australian Banks being exposed for misconduct by the Royal Commission, paying billions in fines and forecasting less profits,

All demonstrating how quickly investor sentiment can change and evolve.

Whether the market is, or will become completely comfortable with all or some of the concerns above remains to be seen. In the US, reaching a new North American trade agreement gave some relief, but progress has been elusive in talks with China, a situation that appears poised to potentially flare at any moment. Europe’s slow growth is fragile, and it looks likely Australia will have another change of Prime Minister in May 2019. But again, knowing when a flare up around these issues might happen, how long it would last, and how it might impact investment markets strikes us as a monumental task.

Bill Shorten

Fintech’s investment management committee think there’s a better way to invest. Specifically, we don’t believe every market hiccup needs deep analysis, nor do we read tea leaves. We prefer to focus our work on fundamental research, contrarian signals, and investment valuations. In the long term, you get paid by the current and future cash flows of the shares and securities you own. We seek to buy securities when prices are low compared to expected cash flows. This valuation work is the driver of our research, and it relieves us from becoming overly concerned about the next central bank rate decision or the outcome of an election.

Scott Morrison frustrated

Should We React to Spikes in Volatility?

The short answer: No. We focus on long term valuations, the true and durable value of an asset class, rather than the volatility of its market price. Having a long term perspective makes the next turn in interest rates, political posturing, the US-China trade spat or the Brexit deal less concerning to us. Instead, we ask, “How might this affect fundamentals over the next several years?”

Investors who trade on emotion and short term market moves are more likely to sell after markets have gone down and buy after they’ve risen. We seek to do the opposite, in part by sticking to our principled approach to investing, which is designed to keep us rational in a sometimes irrational world. In this regard, Fintech’s investment management team is prepared to be buyers if and when valuations provide an attractive buying opportunity.

US Federal Reserve Building

Making sure your financial strategies accurately reflect what’s important to you and your specific needs, is critically important. Fintech Financial Services provides advice relating to your level of income, tax, assets, debts, risks (personal and business), family needs, health, savings and desired lifestyle. A key element is constructing your investment structure and portfolios in line with your Investment Risk Profile, tax effectiveness and to provide the level of certainty you require over the long term.

Please contact our office if you would like to review your situation and determine the financial strategy options that will assist you secure your future.


Watch the Quarterly Market Update for November 2018 by Beulah Capital’s Director, Tom Elliott and CEO, Christian Ryan – part of the Investment Management team for Fintech Private Portfolios.

Topics mentioned in this video update include:

  • Positive Investment Ideas for 2019
    1. Technology (FAANGS)
    2. Alternative Lending
  • Interest Rates in Australia
  • Retail and Etail – Myer and Amazon
  • Investment in Victorian freeways good for Transurban Group


Watch the Quarterly Market Update for August 2018 by Beulah Capital’s Director, Tom Elliott and CEO, Christian Ryan – part of the Investment Management team for Fintech Private Portfolios.

Topics mentioned in this video update include:

  • Australian Residential Property Market – Capital Cities In Decline – No Exposure In Your Portfolios
  • Update on ASX Companies Following August Reporting Season
  • Higher Commodity and Oil Prices – RIO and BHP Flush With Cash
  • Corporate Takeovers Activity – Amcor $10b acquisition, Nine & Fairfax, BWX Management Buyout
  • Risks and Opportunities


Scott Morrison’s third budget is headlined by $140 billion in tax cuts over the next decade, immediate tax relief of up to $1,060 a year for middle-income households and a fundamental reform of the tax system.

This Budget will be the last before the next federal election (due by May 2019) and not surprisingly, the proposals include a range of pre-election sweeteners. However, Treasurer Scott Morrison is also keeping the focus on a return to a surplus. Thanks to an improvement in the budget position of around $7bn per annum, the path to surplus has been made relatively easy for the Turnbull Government.

The modest fiscal stimulus will help households, but the main risk is that the revenue boost seen this year is not sustained and the budget continues to have relatively optimistic assumptions regarding revenue growth.

The Government’s stronger corporate revenue has mainly come from reduced tax losses and higher commodity prices. Added to this is stronger personal tax revenue thanks to higher employment and reduced spending. As a result, the 2017-2018 budget deficit is projected to come in at $18.2bn compared to $23.6bn in the Mid-Year review. Impact on the Reserve Bank of Australia’s interest rate settings and the share market is likely to be minimal, if at all.

Positive outlook

The Government has assumed that much of this revenue boost will continue (see the ‘Parameter changes’ line in the table below) and has only used a small part of it to fund tax cuts and other measures. The net result is that the budget is projected to continue to track to a surplus. This is now expected to be reached one year earlier in 2019-2020 albeit only just at $2.2bn in the positive or 0.1% of GDP. The move back to surplus is slowed slightly by the fiscal easing from policy changes, which are predominately tax cuts. For example, the 2018-2019 deficit is projected to fall to $14.5bn but it would have fallen to $13.8bn were it not for the tax cuts announced.


The planned tax cuts for higher income earners over the next decade are designed to satisfy the Government’s commitment from the 2014 Budget to cap tax revenue at 23.9% of GDP (or total revenue once dividends are allowed for as shown in the chart below at 25.4% of GDP). This is on the basis of the historic highs reached in the Howard resources boom years, and this cap is now projected to be reached in 2021-2022.


What’s next

The 2018-19 Budget has a sensible focus on providing a small boost to households (with the full impact of tax cuts not occurring until next decade) and to infrastructure at the same time as maintaining a return to surplus. The main risks are around whether the recent revenue windfall to the budget proves temporary and the assumptions for continued strong revenue growth.

If you would like to discuss the implications of any of the 2018 Federal Budget announcements to your personal situation, please contact Fintech Financial Services on telephone 07 3252 7665.


Summary of key Budget measures

Note: These changes are proposals only and may or may not be made law.
From 1 July 2018

  • Low and middle income earners are to benefit from tax savings of up to $530 per person (or $1,060 per couple). This is mainly achieved by lifting the Low Income Tax Offset and raising the $87,000 tax threshold to $90,000.
  • Dropping the planned 0.5% Medicare Levy increase, which will remain at 2%.
  • The $20,000 instant asset write-off for business with aggregate turnover less than $10m will be extended until 30 June 2019.
  • Funding for home care services and residential aged care will increase, and new products listed on the Pharmaceutical Benefits Scheme.

From 1 July 2019

  • A one year exemption from the ‘work test’ will apply to recent retirees who have less than $300,000 in total super savings.
  • Life insurance can only be offered in super on an ‘opt-in basis’ to new members under 25 years of age or members with inactive accounts or an account balance under $6,000.
  • Fees when exiting a super fund will be banned and administration/investment fees will be capped at 3% pa on accounts with balances of less than $6,000.
  • The ATO will work to proactively reunite Australians’ dormant superannuation funds with their active account, with inactive balances less than $6,000 to be transferred to the ATO.
  • The Pension Loans Scheme will be available to all Australians over Age Pension age and the maximum payments will increase to 150% of the full Age Pension.
  • An extra $25bn in infrastructure spending including the Melbourne rail link, Bruce Highway, Gold Coast/Brisbane M1, road and rail in WA and North-South Corridor in SA. This is only partly offset by various savings including an illicit tobacco tax and the usual tax integrity measures to target the black economy and multinational tax avoidance.
  • Ongoing commitment to cut the corporate tax rate to 25% for large companies by 2026-27.

Opportunities post 1 July 2018

There are some key financial strategy opportunities for our clients following announcements made in previous Federal Budgets that are already legislated to take effect on 1 July 2018. These include:

  • People aged 65 or over can make ‘downsizer’ super contributions of up to $300,000 from the proceeds of selling their home.
  • First home buyers who have made super contributions under the First Home Super Saver Scheme can access their money for eligible property purchases.
  • Where the annual concessional contribution cap is not fully utilised, it may be possible to accrue unused amounts for use in subsequent financial years.

Further information on these opportunities can found at the end of this summary.


Personal income tax savings
Date of effect: From 1 July 2018
Low and middle income earners will benefit from initial tax savings of up to $530 per person (or $1,060 per couple) in the 2018-2019 financial year, then via a series of further tax cuts to be implemented over seven years.

Personal income tax thresholds

Treasurer, Scott Morrison has a plan to fundamentally reform the tax system with changes to the income thresholds in 2022, and in 2024. The tables below show the impact of removing the 37% tax bracket and having the 32.5% tax bracket go all the way up to $200,000 on 1 July 2024.


Personal tax offsets

  • A Low and Middle Income Earners Tax Offset of up to $530 will apply from 1 July 2018 to 30 June 2022.
  • From 1 July 2022, the Low Income Tax Offset will increase from $445 to $645.

Personal tax savings

Table 2 below illustrates the tax payable in future financial years (and the potential tax savings compared to 2017/2018) for a range of taxable incomes. These figures take into account the proposed personal income threshold and tax offset changes.


Medicare levy to stay at 2%

The previously proposed increase in the Medicare levy to 2.5% from 1 July 2019 has been abandoned.

Extension of instant asset write off

Date of effect: From 1 July 2018
Small businesses with turnover of less than $10 million will be able to immediately write-off newly acquired eligible assets valued at less than $20,000 for a further 12 months.


Work test exemption for retirees
Date of effect: 1 July 2019

A person aged 65 to 74 is currently able to make contributions to superannuation if the ‘work test’ has been satisfied (i.e. they have worked at least 40 hours in 30 consecutive days) in the financial year the contribution is made.

A one year exemption from the work test will apply to older Australians who have less than $300,000 in total super savings. This exemption will apply to the financial year following the last year the work test was satisfied. This will allow an additional period of time for those eligible to contribute to superannuation.

Insurance in super

Date of effect: 1 July 2019
In many super funds, including MySuper and employer funds, insurance is offered as a default option. It’s proposed that members will need to ‘opt-in’ for insurance where they:

  • have a balance less than $6,000
  • are new members under age 25, or
  • have an account which has not received a contribution in 13 months and are considered inactive.

Protection for small super balances

Date of effect: 1 July 2019
Measures will be introduced to reduce the impact of fees on low super balances and focus on returning lost super to members.

  • Protection will be provided to super accounts by limiting administration and investment fees to a 3% annual cap. This cap will apply to accounts with balances below $6,000.
  • Exit fees will also be banned on all super accounts.
  • A $6,000 threshold will apply to inactive accounts. These accounts will need to be transferred to the ATO. The ATO will increase data matching activities to return amounts to active accounts held by members.

Personal deductions

Date of effect: 1 July 2018
The ATO will develop new compliance processes for taxpayers claiming a deduction for personal superannuation contributions. This includes raising awareness regarding the necessary steps, including lodging a ‘notice of intent to claim a tax deduction’ form with the super fund trustee.

Inadvertent concessional cap breaches

Date of effect: 1 July 2018
Employers are required to pay Superannuation Guarantee (SG) based on an individual employee’s income. For some individuals this means their concessional contribution cap is breached by the total of multiple employers’ compulsory contributions.

Individuals who have a total income exceeding $263,157 pa and multiple employers will have the option to elect to no longer have SG contributions paid on certain income from their employer. This overcomes the inadvertent breach of the concessional contribution cap and associated tax penalties.

SMSF increase in member numbers

Date of effect: 1 July 2019
Self-managed superannuation funds (SMSFs) are limited to having four members. This threshold will increase to six to provide greater flexibility and allow families, for example, to all be members of the same SMSF.

SMSF three-year audit cycle

Date of effect: 1 July 2019
SMSFs with a history of good record-keeping and compliance will move from providing an audit on an annual basis to a three-yearly cycle. Eligible SMSFs will be those with a history of three consecutive years of clear audit reports and have lodged annual returns on time.

Social security

Pension Loans Scheme

Date of effect: 1 July 2019
The Pension Loans Scheme allows eligible individuals to access some of the equity in the home or other property via a Government loan, which is advanced in fortnightly instalments.

This scheme will be available to all Australians over Age Pension age and the maximum loan payments will increase to 150% of the full Age Pension. Eligibility will continue to limited by the value of the property used as loan security.

The following table summarises the payment ranges for singles and couples based on current rates, where the full pension and no pension is available.


Work Bonus

Date of effect: 1 July 2019
Under the Work Bonus, the first $300 per fortnight (currently $250) of employment income will not count when calculating Age Pension entitlements under the income test.

Self-employed retirees will be able to access the scheme for the first time.

A ‘personal exertion test’ will ensure the bonus only applies to income earned from paid work.

Any unused Work Bonus (up to a total of $7,800 pa) can continue to be accrued to reduce assessable employment income in a future period.

Means-testing of certain lifetime income streams

Date of effect: 1 July 2019
Favourable social security rules will be introduced to encourage the development and use of income products that will help retirees reduce the risk of outliving their savings.

Under the proposed rules, only 60% of the amount initially invested in these ‘lifetime income streams’ will be assessed under the assets test. This concession will apply until the account holder is 84 (or for a minimum of five years). After this time, only 30% will be assessed for the rest of the person’s life. Also, only 60% of the income payments will be assessed under the income test.

Means testing of Carers Allowance

Date of effect: To be confirmed by Government
As previously announced, the Carer Allowance and Carer Allowance (child) Health Care Card will be income tested. Households earning over $250,000 won’t be eligible. Both existing and new recipients of Carer Allowance will need to meet this income test.

Aged care

Additional funding for aged care

Date of effect: From 1 July 2018
Funding for home care services and residential aged care will increase, including:

  • 14,000 new home care packages over four years
  • 13,500 new residential aged care places, and
  • grants for aged care facilities in rural, regional and remote areas.

Legislated super changes post 1 July 2018

Downsizer contributions

Individuals aged 65 or older may be able to make super contributions of up to $300,000 (or $600,000 per couple) from 1 July 2018 when selling their home.

These contributions, known as ‘downsizer contributions’ can be made without having to meet a ‘work test’ or ‘total super balance test’ and they don’t count towards the contribution caps. However, they must be made with 90 days of settlement and a tax deduction can’t be claimed.

The property must have been owned for at least 10 years and have been the main residence at some time during this period.

First home super saver scheme – access

First home buyers who have made super contributions under the First Home Super Saver Scheme (FHSSS) can access their money from 1 July 2018.

The FHSSS started on 1 July 2017 and allows eligible first home buyers to save a deposit in the concessionally taxed superannuation system. Contributions of up to $15,000 per year (and a total of $30,000) can be made and they count towards the relevant contribution cap.

An online estimator is available to explore the potential benefits of using the FHSSS.

Catch-up concessional contributions

Where the annual concessional contribution (CC) cap is not fully utilised from 1 July 2018, it may be possible to accrue unused amounts for use in subsequent financial years.

The CC cap is currently $25,000 pa1. Counted towards this limit are all employer contributions (including super guarantee and salary sacrifice), personal tax deductible contributions and certain other amounts.

Unused cap amounts can be accrued for up to five financial years. 2019/20 is the first financial year it will be possible to use carried forward amounts.

To be eligible, individuals cannot have a total super balance exceeding $500,000 on the previous 30 June.

This measure could help those with broken work patterns and competing financial commitments to better utilise the CC cap. It could also help to manage tax and get more money into super when selling assets that result in a capital gain.

This cap applies in FY 2017/2018 and 2018/2019. It may be indexed in future financial years.




The Reserve Bank of Australia (RBA) has kept Interest Rates on hold at 1.5% for the 19th consecutive month at its monthly board meeting on Tuesday – but this is not a time to be complacent even though rates are likely to stay low for the time being.

Australia’s central bank has signalled on several occasions that the next cash rate move is likely to be up. Whilst we agree, we believe the “lower for longer” interest rate environment will continue until around the end of the 2018 calendar year.

There are competing core factors in the current market place that make it unlikely that the official RBA rate will change before then.

On one hand, high business confidence, strong jobs growth and the RBA’s own growth and inflation forecasts argue against a rate cut.

However, on the other hand, downwards pressure on consumer spending, weak wages growth, low inflation, the slowing Sydney & Melbourne property markets and the stubbornly high Australian dollar argue against a rate hike.

The eastern coast residential property market (particularly Sydney & Melbourne) is also showing signs of a soft landing. A controlled slowdown in the housing sector will be a welcome outcome for the RBA. In addition, the current rate of unemployment, although lower than a year ago, only crept higher from 5.4 per cent to 5.5 per cent in February 2018.

Even though these counterbalancing factors have created remarkably steady interest rates for 19 consecutive months, this is not a time to be complacent about the future impact of rising interest rates.

We are advising clients to start preparing for interest rate increases from the end of the 2018 calendar year. This is particularly important for clients with high levels of debt against residential property who are making fixed ‘Interest Only’ repayments right now.

This is because the Australian Prudential Regulation Authority (APRA) – who oversee the banks – restricted the ability of the banks to provide new ‘Interest Only’ loans to investors and homeowners more than a year ago. These macro-prudential policies were put in place as an alternative to rates being increased and to curb the rate of lending in the property sector. Prior to this, an increased number of 1 – 5 year fixed term ‘Interest Only’ loans were established, given the lower level of repayments required. When these come to an end, they will typically be restructured to ‘Principal & Interest’ loans.

This means that the size of repayments investors will have to make to service the principal & interest loans will significantly increase. On top of this, interest rate increases in the future will add more cash flow pressure to them. We are advising our clients to review their incomes and cash flow to ensure they are able to stay liquid and grow their wealth during this change in the long term interest rate cycle.

The only good news in this scenario is for those investors looking for a better rate of return on their cash at bank or term deposits; as interest rates rise.

Please contact our office if you wish to discuss any of the above further in relation to your specific circumstances.

What does Bill Shorten’s proposal to remove the refund on excess franking credits mean?

We have had several enquiries from clients wondering what this all means, so we have put together an overview of the key issues to explain how this could affect you.

Firstly, it is important to point out that these changes are only ‘proposals’ made by Bill Shorten, the leader of the opposition party, and are evolving as the party gauges how popular the proposals are with the Labor constituents and the general public.

To affect change, Labor would need to win the next election, and be in a strong enough position to successfully get the changes passed through the House of Representatives and the Parliament by majority vote. Outside the possibility of a double dissolution, the next election must be held between 4 August 2018 and 18 May 2019, so it is likely that the details and complexities of this policy will be hotly debated by both parties as they attempt to increase their numbers in the polls.

In a nutshell

This is a policy that proposes to take away a tax refund that mostly benefits people (and/or their super funds) in the lowest tax brackets (see the first two tax brackets in Table 1.). So, it will be tough for Labor to maintain the argument that the reason for the proposal is because low income earners are being disadvantaged by the wealthy elite who are getting more tax refunds than they are. There are a lot of complexities behind all this, so be prepared to hear more debates and conflicting information from both sides of politics and the media.

Table 1.
2017–2018 Individual income tax rates (Australian residents)

Table1 - Individual Income Tax Rates - Australian Residents

The above rates do not include:

  • The Medicare levy of 2% (legislation pending to increase this to 2.5%).
  • The low-income levy, which effectively increases the tax-free threshold to $20,543.

Self Managed Super Funds (SMSFs) and Pensioners

However, you can see in the top section of Table 2. below, that in the 2014-2015 year there were large numbers of SMSFs and Pensioners across every state of Australia benefiting from the tax refunds from excess franking credits.

Australia is very unique in the way it refunds taxes on dividends and provides tax-free income streams for retirees in superannuation. No other country in the world provides this benefit. The Labor Government will argue that this combination of benefits is creating an increasingly larger group of wealthy seniors who are spending longer periods of time paying no tax as their life expectancies increase. Official figures show that the proportion of older Australians paying no income tax has increased from 73% in 1995 to 84% in 2014, and is growing. These are issues that the Government will need to address whoever is in power.

In summary, those affected by Labor’s proposals would include a relatively small number of people on the Full Age Pension, a slightly larger number of people on Part-Pensions and then the Self-Funded Retirees (drawing tax-free super pensions). Many of our clients in these categories stand to lose what has become a significant supplement to their income, ranging from hundreds, thousands to tens of thousands of dollars a year.

To soften the original announcement, Labor have also announced that low-income retirees will now be excluded from the franking credit crackdown as will SMSFs with at least one Age Pensioner (or Centrelink allowance recipient) before 28 March this year. The problem with this approach is the that those SMSF retirees who did not qualify for the Age Pension before 28 March 2018, will not be able to access the same level of Age Pension entitlements to supplement their superannuation incomes, creating an unfair, two-tiered and complex system for SMSF members and superannuation going forward.


The bottom section of Table 2. below shows that the two lowest income brackets for Individuals ($0 – $18,200 and $18,201 – $37,000) make up 86% of those that qualify for the excess franking credits refunds. This highlights that low income earning individuals are mostly those receiving some kind of benefit from the refund of excess franking credits.

Table 2.
Table2 - Those receiving Franking Credit refunds, by type 2014-2015

What are franking credits and dividend imputation?

A portion of Fintech’s diversified portfolios are invested in Australian shares, which benefit from some franked dividend income. Dividends are the amounts paid out from those Australian shares using profits that the companies have made during the year and often come with an imputation or franking credit attached.

Dividends are grouped together with any other income or earnings you make during a financial year to determine your overall taxable income. When a large company earns a profit, it is required to pay tax on that money at the corporate tax rate of 30%.

Before the dividend imputation system was introduced in 1987 by the Hawke/Keating government, the tax office would firstly tax the company, and then secondly the investor when they received the dividend, in effect a form of double taxation.

Since the introduction of the dividend imputation (or franking credit) system, when you have received a dividend from an Australian share in your portfolio, you have only been taxed on the difference between the company tax rate of 30% already paid and your marginal tax rate.

Three examples of how franking credits are applied:

  1. If your Individual tax rate was at the highest level of 47% (inc 2% Medicare Levy), then you would pay tax at 17%, the difference between your tax rate of 47% and the 30% franking credit for the company tax already paid.
  2. Conversely, if your Individual tax rate was 30%, then you would not pay any tax on dividend income received, as it would be offset completely by the 30% franking credit for the company tax already paid.
  3. Refunding of excess franking credits – If your tax rate was 0% (same as the tax-free pension phase in super), the you would be eligible for a refund of the excess franking credit. That is, the entire 30% company tax paid is added back to your income as a credit, creating a tax refund.

This has made owning ‘blue chip’ Australian shares paying dividends with imputation or franking credits a powerful strategy, especially for investors whose marginal tax rates are less than the corporate tax rate of 30%. Since the year 2000, when the Howard/Costello Government made excess franking credits fully refundable, the cost to the federal budget has ballooned to about $5.6 billion a year, and growing.

Table 3. below provides a comparison of the impact of Labor’s plan to end cash refunds for unused or excess franking credits across three different investor structures.

Table3 - Franking Comparison - Source: BDO Interact


  • Dividend Yield 4%
  • Franking Rate 100%
  • Corporate Tax Rate 36% (1998), 30% (2017, 2021)

Comparison Chart Source: BDO Interact

In summary

The refunding of excess franking credits has been particularly beneficial for members of superannuation funds or SMSFs that are in tax-free pension mode (over age 60 and fully retired), as it has added approximately 1.71% per annum to the after-tax return. A benefit of approximately 1.33% in additional returns applies to Individuals who own Australian shares with franking credits and have no other earnings in their own names, as they are also on a 0% tax rate.

The Turnbull government will argue that on 1 July 2017, it introduced the $1.6 million limit on the amount of money that can flow tax free from pensions in super (Transfer Balance Cap), which has already curbed some of the costs of super concessions. Under the new rules, SMSF members with more than $1.6 million will be paying tax on some of their earnings that will offset the value of their franking credits, limiting their refunds.

It will be very interesting to see whether Shorten’s radical policy announcements to remove the refund on excess franking credits will have enough appeal to the tradition Labor heartland or become a big policy mistake. There may be enough weight with disgruntled self-funded retirees to garner support and momentum for the Turnbull Government to win a second term and continue implementing the existing policies that only came into effect from 1 July 2017.

Please contact our office if you wish to discuss any of the above in relation to your specific circumstances.


Principal of Fintech, Grant Chapman delivers his Christmas message to Fintech clients and followers. Includes a short recap of the year it was, a few little updates, insights and a message of thanks & hope to everyone this holiday season.

A local SMSF Accounting professional covering Queensland is in the running to take out one of Australia’s most coveted SMSF awards.

Keersten Plep has been shortlisted as a finalist in the SMSF Specialist Accountant of the Year category at the state-based 2017 SMSF and Accounting Awards hosted by SMSF Adviser, Australia’s top publication for SMSF professionals.

The inaugural SMSF and Accounting Awards will recognise individuals and businesses that are making their mark in SMSF and accounting advice by championing professionalism, quality advice and innovation.

Founded in 1987, Fintech offers integrated financial solutions to the Queensland community. It has particularly strong relationships with [appropriate network] and specialises in financial strategy and advice, investment management and SMSF Accounting.

Manager editor of SMSF and Accounting, Katarina Taurian, said that the winners “represent a cross-section of this state’s outstanding professional talent, pointing to an absolute dedication to delivering specialist, unique advice to a burgeoning client base”.

“Some top-performing firms and professionals are focused on doing business in their home states and locales, and we are excited to acknowledge the unique excellence and expertise they are bringing to their client base,” she said.

Grant Chapman, Principal at Fintech said he is humbled by the nomination.

“That Fintech has been recognised for its excellent contribution to the SMSF Accounting industry reinforces the strength of our brand in connecting with our target market and customers,” he added.

The winners will be announced at a gala dinner at Brisbane Convention and Exhibition Centre in Brisbane on Thursday, 26th October.

On Tuesday 9 May 2017, the Treasurer, Scott Morrison, released the Government’s 2017-18 Budget.

treasurerThe Treasurer has handed down a politically correct “tax, spend, build” budget. The big five Australian banks (ANZ, CBA, Macquarie, NAB and Westpac) will wear a new levy on their liabilities to partly fund the unwinding of spending cuts; and an increase in Government expenditure on infrastructure, health, and education. It is unclear whether the big five can or will pass the cost of this extra tax on to their customers, as there is a potential 5% reduction to their profits and dividends as a result. In other measures, it is commendable to see housing affordability being addressed for first home buyers, and options for retirees downsizing their principal residences to top up their superannuation as a key part of this Budget.

Retirees have not been significantly impacted in this Budget, which is a good thing given the raft of ‘Super Reform’ changes still to take effect on 1 July 2017 from the 2016-17 year Budget. To review the details of the Super Reform changes, please click here to see a previous update https://ifsolutions.com.au/2016/09/super-changes-gives-a-window-of-opportunity/ and view the ‘IFS Super Reforms at a Glance‘ flyer (pdf – 120k).

‘Super Reform’ key points to consider before 30 June 2017

  • If you have total super and pension balances above $1.6m, it is important to get professional advice and assess your options regarding actions you should take before 30 June to ensure you maximising your tax-free entitlements effectively in the long term. This includes determining how to utilise the ‘once only’ Capital Gains Tax (CGT) Relief options available, and the impacts on your estate planning arrangements.
  • If you are under age 65 and have not triggered the Non-Concessional ‘after-tax’ Contributions (NCC) ’2yr bring-forward’ rule by contributing over $180,000 in any of the past 3 financial years, you can contribute up to $540,000 for the last time before 30 June 2017.
  • Consider making Concessional ‘before-tax’ Contributions (CC) or contributions up to $30,000 for those under age 50, and $35,000 for those over age 50. The CC caps drop to $25,000 per annum for everyone after 1 July 2017.

However, there are other key measures announced in the 2017-18 Budget that may be of importance for you

Please read the summary below and contact our office if you would like to discuss any the proposals and how they may impact you. It’s important to note that at this point in time, these proposed measures are not yet law and may be subject to change.

From 1 July 2018, individuals aged 65 and over will be able to make an after-tax super contribution of up to $300,000 ($600,000 for couples combined) from the proceeds of the sale of their home. This measure will only apply following the sale of a principal home held for a minimum of 10 years.

This new measure will not attract any special Centrelink treatment but it will allow eligible individuals to make contributions above the new superannuation limits, without being subject to work or age test requirements.

To reduce pressure on housing affordability the Government will allow voluntary superannuation contributions to be withdrawn for a first home deposit.

  • From 1 July 2017, individuals can make voluntary contributions of up to $15,000 per year, up to $30,000 in total, to superannuation for the purposes of this measure. Voluntary contributions can be made before or after tax and are subject to the relevant contribution caps.
  • From 1 July 2018 those voluntary contributions (along with deemed earnings) can be withdrawn for a first home deposit.
  • Withdrawals will be taxed up to an individual’s marginal rate, less a 30% offset. Withdrawals of after-tax contributions will not be taxed.

From 9 October 2017 the Government will reinstate the Pensioner Concession Card (PCC) for former pensioners who lost their Age Pension as a result of the 1 January 2017 Age Pension changes. Those affected will receive the PCC and retain the Commonwealth Seniors Health Card, to ensure they continue to receive the Energy Supplement. Where they received the Low Income Health Care Card, that card will be deactivated.

From 26 June 2017, the Government will make a one-off Energy Assistance Payment of $75 for single recipients and $125 per couple for those eligible for qualifying payments on 20 June 2017, and who reside in Australia. The payment is not taxable and will not be counted as income.

Qualifying payments include:

  • Age Pension
  • Disability Support Pension
  • Parenting Payment Single
  • Veterans’ Service Pension, Veterans’ Income Support Supplement, Veterans’ disability payments
  • War Widow(er)s Pension, and permanent impairment payments under the Military Rehabilitation and Compensation Act 2004 (including dependent partners) and the Safety, Rehabilitation and Compensation Act 1988.

The Government will revise the residency requirements for claimants of the Age Pension and the Disability Support Pension (DSP) from 1 July 2018. Generally, claimants will now need to have 15 years of continuous Australian residence before being eligible to receive the Age Pension or DSP unless certain conditions or an exemption applies.

The Government will progressively consolidate seven working age payments and allowances into a new JobSeeker Payment or transition recipients to Age Pension.

The working age payments affected are:

  • Newstart Allowance
  • Sickness Allowance
  • Widow Allowance
  • Partner Allowance
  • Widow B Pension
  • Wife Pension
  • Bereavement Allowance.

From 20 September 2018, the period that a person must wait before being paid an allowance (for example Newstart), if they have ‘liquid’ assets will increase from 13 weeks to 26 weeks.

The Government will continue to keep the Family Tax Benefit (FTB) payment rate fixed until 1 July 2019. Indexation in line with the Consumer Price Index will resume from that date.

From 1 July 2018, all families with total income over $94,316 will have their Family Tax Benefit (FTB) Part A reduced by 30 cents for every dollar above $94,316.

From 1 July 2019, the Medicare levy will increase by 0.5% to 2.5% of taxable income. The increase ensures the National Disability Insurance Scheme (NDIS) is fully funded.

The 2016-17 financial year Medicare levy low-income threshold will be increased as follows:

Family status



Single $21,655 $21,335
Single, eligible for seniors and pensioners tax offset (SAPTO) $34,244 $33,738
Couple $36,541 $36,001
Couple, eligible for SAPTO $47,670 $46,966
Additional threshold for each dependent child $3,356 $3,306

From 1 July 2017, the Government will no longer allow deductions for travel expenses related to inspecting, maintaining or collecting rent for residential rental property. However, investors can continue to deduct those types of expenses incurred by third parties such as real estate agents and property management services.

In addition, from 1 July 2017, depreciation deductions on plant and equipment (for example dishwashers and fans) will be limited to outlays actually incurred on residential properties. For plant and equipment purchased after 9 May 2017, deductions are claimable over the effective life of the asset only by the investor who bought the items.

For investors with existing investments as at Budget night, grandfathering rules will apply, broadly allowing deductions to continue until either the investor no longer owns the asset or the asset reaches the end of its effective life.

The Government will make a number of changes over the next two years impacting the operation of aged care, including extending the Commonwealth Home Support Program, Regional Assessment Services funding arrangements and palliative care services.

The programs contribute to essential home support services, such as meals, personal care, nursing, domestic assistance, home maintenance, and community transport to assist older people who would like to remain in their home for care.

The Government will extend the accelerated depreciation rules for small businesses by 12 months to 30 June 2018. This allows small businesses, with aggregate annual turnover of less than $10 million, to immediately deduct purchases of eligible assets up until 30 June 2018, provided the asset costs less than $20,000. Assets valued over $20,000 or more can be depreciated at 15% in the first income year and 30% each income year thereafter.

From 7.30pm on Tuesday 9 May 2017 there will be a number of changes affecting property investments by foreign residents. These include an additional charge if the property is left vacant for more than six months in a year, the removal of the main residence capital gains tax exemption (for properties purchases after Budget night) and from 1 July 2017, a 12.5% capital gains tax withholding regime for property transactions of $750,000 or above.

If you would like to discuss how any of these proposed changes impact your specific situation please contact Grant Chapman, Principal of Integrated Financial Solutions on telephone 07 3252 7665.

World financial markets swung wildly yesterday afternoon as Donald Trump stunned the world and headed for victory over Hillary Clinton to secure the top job at the White House. 

A gracious tone in the first speech by US President elect Trump had a calming effect on the markets, and there was a surprisingly fast recovery following initial sell-offs.

Trump sounded more Presidential than at any stage during the long winded US election campaign:

  • Trump congratulated his Democratic rival, saying that Hillary Clinton waged “a very very hard-fought campaign”. He also commended her for having “worked very long and very hard” over her political career.
  • “Now it’s time for America to bind the wounds of division – to get together,” he said. “To all Republicans and Democrats and independents across this nation, I say it is time for us to come together as one united people”.
  • Trump, who had been criticised by opponents for rhetoric characterised as divisive and racist, pledged, “I will be president for all Americans, and this is so important to me”.

The Australian sharemarket initially dropped by almost 4% but recovered to end up down 1.94% at close of trade. The US dollar and European markets also recovered from early dips as markets continued to digest Trump’s victory for the Republicans including winning control of the House and Senate.

The Trump result eerily emulated the ‘Brexit’ experience in Britain earlier this year. There was a sense of complacency, surprise and panic, followed by swift recovery. In fact, it has happened more quickly this time.

However, it is yet to be seen whether Trump will be a much better President than some people were expecting less than 24 hours ago, and if there are enough positives from the result including the absence of a congressional deadlock. Markets around the world will be looking for Trump’s actions to reflect the words in his victory speech, with less of the maverick behaviour that he portrayed throughout the campaign.

Will Trump’s policies get traction?

Trump’s policy platform lacks the cohesion of a “typical” Presidential candidate reflecting his relative isolation from the Republican Party. This is further exacerbated by the fact that he has also been both a registered Democrat and Republican voter in the past.

There have also been some major shifts in policy during the campaign which makes it difficult to determine his core beliefs, although these shifts have largely been around immigration, social policies and foreign affairs.

Trump’s major economic policies include:

  • Lowering the corporate tax rate to 15% from 35%, and eliminating loopholes and deductions.
  • Cutting the top personal income tax rate to 33% from 39.6% and simplifying personal income tax by collapsing the current seven tax brackets to three.
  • Repealing estate tax laws.
  • Repealing or renegotiating trade deals including the North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States, and the Trans-pacific Partnership.
  • Increasing tariffs on exports to the US (and leaving the World Trade Organisation if it rejects the proposal).
  • Replacing the Affordable Care Act (Obamacare) with a more market-based health insurance system.

Congressional support for many of Trump’s policies may be difficult to achieve once he is in the White House

Some uncertainty remains:

  • The Mexican Peso has fallen almost 12% hitting at a record low. This is not so much reflecting Trump’s threat to “build a wall” along the border between Mexico and the US, but rather his intention to slap a tariff of 35 per cent on Mexico’s exports to the US.
  • Trump’s promise to launch a trade war against China, by declaring it a “currency manipulator”. He’s also threatened to impose tariffs of up to 45 per cent on everything China exports to the United States, something he can do under existing legislation.
  • Trump’s fiscal policies will add significantly to the US budget deficit and US public debt, potentially leading to higher long term US interest rates (which would in turn be negative for stock prices).
  • Trump’s repeated personal attacks on US Federal Reserve Chair Janet Yellen and the call to “audit the Fed” threaten to undermine market confidence in the Federal Reserve. President Trump will have the ability, almost immediately upon taking office, to reshape the Fed by filling the two vacancies on the Federal Reserve Board. Previously replacements for the board have been blocked by the Republican-controlled Senate in the outgoing Congress.

Reasons that markets are not likely to have a complete meltdown: 

  • The US economy is in reasonably good shape, with unemployment still low and growth rising in the last quarter.
  • Real economic growth has picked up in recent months while the unemployment rate, at 4.9%, is close to any economist’s definition of full employment.
  • S&P500 earnings have rebounded smartly from the oil & dollar induced slump of 2015 and inflation is still moderate.
  • The global economy is also showing signs of life with the global manufacturing PMI index hitting a two year high in October. All of this, absent political uncertainty, would be positive for stocks and negative for bonds.

What does this mean for your investments?

While ongoing uncertainty associated with the Trump presidency is likely to put a hand brake on equities markets, there is a concern that if passed, the combination of tax cuts and trade policies would see US budget deficits increase and the economy hurt by retaliatory trade actions.

In the short-term, the US Federal Reserve is likely to delay interest rate increases including the potential December hike, in response to the renewed uncertainty. However, in the longer term, deterioration in the deficit and higher inflation would likely see bond yields rise.

Your Integrated Financial Solutions investment portfolios reduce risk by utilising market leading research to identify high quality stocks that are diversifying across asset classes, regions and sectors in line with your risk profile.

To maximise your long returns, your portfolio is designed to deal with short term equities volatility that comes with geopolitical and other risks such as a the Trump Presidency result. This removes the need for panic sell-downs and mis-timed portfolio changes after markets have already fallen, crystalising losses. A well-diversified mix of highly researched, quality companies and stocks will benefit from market bounce backs that follow sharp declines over time.

Please contact our office if you would like to discuss your current investments or to take advantage of buying opportunities that arise.