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The changes to the Capital Gains Tax for $50k+ incomes should stimulate interest in growth shares as the Capital Gain will be taxed lower than any dividends (even fully franked dividends). 24% maximum CGT compared to 48% for dividends for income earners in the highest tax bracket.

One possible upshot of the change may be that companies may pay less in dividends preferring to embark on projects that could increase the price as these shares would be preferred by investors.

Any comments?
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Hi!

I agree with everything you say. I was interested to hear a reporter on the news say that the changes were likely to encourage companies to pay more profits out as dividends, but I can't see this being the case. If a company can make a decent ROE it definitely should retain profits, especially if it's tax rate is considerably lower than that of a majority of its shareholders.

Regards
Alistair
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The 'Ralph' and reduction in CGT is an attempt to induce overseas investment into Australia.

It was interesting that in commentary on our tax situation with another fool (US) he commented that our tax system (at present) is so onerous and monopolistic that it defeats the capitalist ideals. He is right when you think about it and compare with other countries.

The fact that it is tax effective to invest in companies on a negatively geared basis means that any new entrant into the markety MUST produce dividends in order that investors partake. Then the government takes 36% and then there is no substantial capital upgrade as it is necessary to keep the shareholders happy!

Anyone care to read the 'Fabian Society' and be prepared to comment on the socialists ideals of big companies and government?

Howards way (with Ralph in tow) is a slap in the face for small businesses and the mining industry. Take a close look at GST on the small business with income under $50K, GST on the service sector and the costs implied to convert to this system. Then look at the Ralph report and the loss on capital depreciation, directors and shareholders credit loans - Really intrigues me as to why they think it is a good thing!

Carmody might as this means that all receipts received are taxed by the payer!
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I don't believe I was commenting on GST. I like the reductions in company tax and CGT, not GST. From what I understand, the Australia and US are two of the strongest economies in the world and neither has a GST.

On another note, you're thoughts re gold mining companies appear to have been vindicated in the short term.

Foolishly
Alistair
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"From what I understand, the Australia and US are two of the strongest economies in the world and neither has a GST."

That's not true, there are various federal and state sales taxes. Also the US has a stiff Capital Gains rate for stocks held less than 18 months.

lance
buying beer in preparation for the bet
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Sorry for the inference to GST. I think that you will find that US does have GST in the form of individual state taxes.

As regards the Oz being the strongest country, it is the reserves and the ability to mine these reserves at economical prices that has allowed us to maintain our quid quo pro!

Do not be deceived by what is being printed in the Eastern States of Oz. Scratch the surface and you will see that bankruptcies are UP and a lot of small businesses are struggling. In WA the employment rate is ever increasing due to mine closures. Someone quoted 20,000 unemployed in the gold minng industry alone.

Take a closer look at the agricultural and transport industry and you will see that there are larger problems. Remember that the flow on from all of these areas is to the Banks and Financial Institutions and the lending policies are being changed; albeit too late; to try and overcome these problems.

If it wasn't for the Olympics in Sydney then we would be in a real mess!

HKSB economists expect a worldwide recession late 2000 through to 2001...

PS: Get out of HFY
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My question is a bit more mundane than global economies. Will the possibility of companies not paying dividends but relying on growth either through mergers/aquisitions or capital ventures affect the Dow Dividend Approach on the Australian All Ords?

Will the Aussie Dogs still appear based either on the Yield or R/P ratio given that the yield may be high for those companies that continue to pay good dividends at the expense of share growth?

Will the PEG ratio be a better bet for calculating the Aussie Dogs?

Kevin
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Looks like I'm definitely no expert on US taxes, I read that they do not have a GST in an article by Terry McCrann who is generally pretty reliable.

I nmust say I think demiller is being a little overly pessamistic as to Australia's financial situation.

Foolishly
Alistair
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Me pessamistic?

Nah... just plain boring contrarian, watching all the signals and fully aware of what the stats indicate.

If you cannot see the writing on the wall as an analyst then scratch a little harder. Look at the fundamentals... there is higher bankruptcy rate - there is an increase in unemployment in the mining industry - there is a dependency by WA on mining - oil prices - petrol prices are rising due to the cost of crude which will affect everything from agriculture through to transport ... inflationary trends which will impact on the interest rate.

And what about our present CGT legislation that only allows a capital profit to offset a capital loss. Mind you the poor 'bastards' that do mortgage everything with a gd idea and try and bring it to the world. When they loose everything (due to big business stiffling competition through monpolistic tendencies)including the shirt on their back. No future benefits ... still taxed on income and he/she will never own another house in his lifetime let alone be able to start up business again.


The Oz population are like leemings that do not learn from history and are intent on commiting the same mistakes year after year. Whether it be borrowing maximum amounts possible on marginal rates to buy the dream home or believe the politicians.

Look at the federal government labour years and cringe with the policies that were introduced, in basic reality *fabianism* policies that the left wing have written about for years. Cringe at the press and their absurd love affair with Hawke, Keating governments.

Then we have the *political correctness* inroduced by Keating (mind you I was embarrassed by the 'leader' insulting everyone's intelligence under the guise of parliament).

Then we have a liberal government that is hamstrung by minorities - first a Tasmanian senator that commands around 21,000 votes and now the Democrates. What do we get at the end of the day ... a stuffed GST package that has delivered more problems than Habibie's 'trenchers' in East Timor!

What is cooked chicken, what is this what is that ... you have to legislate food in a certain way or it does not make sense...

Sheesh why not give the exemptions another tug and control the waxing of apples and oranges as that is an additional cost to the raw material...

Our political system does not assist one 'iota' and after years of requesting a tax reform policy we have a GST that means effectively that if you are a small business earning under $50K you cannot register and as such cannot charge the GST. Mind you, you have to pay the GST on all purchases though - therefore you have to increase your charges by 10% to cover this cost.

Now take the services sector - any advice that you give apply a 10% GST. This means that costs are to rise by 10%. The immediate effect is an increase in costs to the end user by 10% in this industry.

Does this not fuel an already fragile inflationary system?

Remembering that previously sales tax applied to a limited number of goods anyway and manufacturers were exempt. Now no-one is exempt!

Then we have the wine industry - the biggest benefactors of any introduction of GST and one of our larger growing exports. What does the government do - introduce a tax on wines so that we now have a Wine Equalisation Tax (WET).... why because the breweries lobbied hard and have the funds to lobby.

The system stinks - you know it and I know it - yet if you have the money to lobby the respective governments then you can alter their mindset.

The Ralph report is now tabled and if you lend monies to a family company then you have to pay taxes on the withdrawals in repayment of the funds lent. They are to be deemed a dividend! Well doesn't this just take the cake for a total tax system in that you can deposit monies into a bank and withdraw them, but you cant deposit funds into a family company and withdraw them without paying taxes first...

Read the report and weep as I can see the further demise of small business. After the 1987 witch-hunt the entreprenuer was banished, now we have another nail in their coffin (offest by stupid tax perks for seed capital which applies to the larger companies only) - no more are we the lucky country...

Postscript ... After reading that you would think that I am against tax reform. Wrong I have been studying tax for a long time through UNSW (ATAX) and in my opinion I feel that the country has lost grip of what we are. A bunch of larrikins that do work hard and invent some wonderful inventions and have some brilliant ideas but due to lack of capital have sold off our ideas and lost interest in the needs of the local community and the world. This is more to do with the fact that we are a *small* country in a *big* world with *big* ideas and *small* minded parliaments intent on holding office not intent on helping the country!

We only have a population of 18 million against the US who have 260 million.... China has billions!
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We all know the system is not perfect. Can you recommend what CAN be done to improve it economically/politically/fiscally? What would you do if tomorrow you were suddenly Prime Minister?

Do other countries have a better economic system in your opinion?

Personally I can only applaud the recent changes.
Being taxed at 48.5% on my hard earned capital gains only to see the government waste money on $10,000 carpets didn't sit well with me. More of my money to spend the way I see fit can only be better. And as for the GST, I don't spend much except for rent, food and utilities - so I am a winner. With the cuts in income tax rates versus the increase in some items, it may be that I am no better or worse off - so be it. Surely there are alot of workers in a simialr position?

Anyway, enough politicking, - I'm going to sell my shares that I use to hold for fear of 48.5% tax, and maybe take a small holiday!

Cheers



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Please do not put me on a soapbox on this one as I wouldn't get any sleep. I will cover one point though.

>>Can you recommend what CAN be done to improve it economically/politically/fiscally? <<

Do not separate tax into CGT, Income Tax etal. Have one tax across the board that covers *all* income. This then would allow you to offset capital losses against income so it gives individuals the chance to get back on their feet again after a *bad* investment decision. The quicker they are standing and earning the quicker they re-invest, whether it be housing industry or commerce.

Yes they can make the same mistake again, yet the learning curve from the deep end is *very* steep.
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