CEO Accountant Breaks Down the Federal Budget

Ajouté : 2026-05-22

[00:00:00]Welcome back to episode number two of the CEO breakdown. It's budget time. I'm going to be reviewing some videos and then I'm going to get into the budget workpapers for you and actually tell you what I think of all the changes that are coming in. Uh on top of all that, at the end, I've got some structures that are really exciting. I'm going to show you through how we're changing exactly what we're advising clients with structures going forward. We're going to be looking at investments uh with property via a structure. We're looking at the old and new structures for business setups. And um yeah, let's just uh jump straight into this. So, first thing I want to run through is this Simon Bid clip and give you a reaction to this. So, let's have a look here. Australia has a problem no one wants to talk about. Our birth rate is collapsing. The latest number is 1.48 burst per woman. Replacement is 2.1.

[00:00:49]This means we're not having enough kids to replace the population and we rely solely on immigration to do it. Even Elon posted on X, Australians are becoming an endangered species, but it's not a small social issue because if you don't have enough young people, >> just while I'm watching this, I'm thinking about the fact that, um, this is a social issue. Um, it's a bit of a touchy subject. So, birth rates, uh, why are women having less kids in Australia and around the world? Um, what's the cause for that? How far deeply, how far back do we want to go into that? Um what's interesting here is um he's going to potentially talk about how we incentivize women to have more children.

[00:01:27]And I'll give you my feedback on that.

[00:01:29]>> Coming through everything breaks, fewer workers, fewer taxpayers, more pressure on healthcare, more pressure on age care, and just the next generation have to carry us all on their shoulders. And in the past, I think we've looked at this the wrong way. We tried the baby bonus in 2004. It started at 3 grand per child and then went up to 5 grand.

[00:01:49]Research does show it did increase bursts, but cash bonuses are a short-term sugar hit. And just like in co, once it's spent, it's gone. A one-off check is not a family strategy.

[00:02:00]Raising kids is not a one-off cost. It's 18 years of food school.

[00:02:04]>> Okay, so he's talking about the fact that um raising kids is expensive and that we're not doing enough as a country to incentivize families to have children. Um I'd agree with that. Now, playing devil's advocate, some people are going to push back against that.

[00:02:17]They're going to say, "Hold on, my tax dollars go to paying for um Medicare, so essentially free healthcare, um public education, um center link, family tax benefit, part A and B, um subsidize school um preschool and um daycare." So, there's a lot of things that, you know, taxpayers are funding to um incentivize families. I I'll disagree with the with the naysayers and I'd agree with Simon on this point that we don't actually do enough to incentivize people to have kids. And the proof is in the pudding.

[00:02:51]The birth rates actually dropping and it's dropping below um subsistence level. It's if you don't have 2.1 kids per woman in a country, then you're not going to be able to replace your population. And Australia is sitting at something like 1.5 or less. And um we're we're supplementing that with immigration. Let's watch on >> sport, energy, time, sacrifice. So if we want families to have more children, we need to incentivize long-term. This is where we can copy from Hungary, which build a tax policy around families. The more children you raise, the more tax relief you get. With four or more children are personally exempt from income tax up to a certain level. Now, I wouldn't copy this.

[00:03:31]>> All right, so Hungary has got a tax system where they incentivize families.

[00:03:36]They've got a flat tax rate of 15%. And uh essentially if you're a woman who has children, the more children you have effectively, the less income tax you pay as a woman. Um I think Simon goes on here to say that um he wouldn't just limit it to women. My my take my take on this would be more so we need to incentivize uh families to have children. And I'd be looking at it from the perspective of husbands and wives. Right now, uh I'm in a situation and many families are in a situation where one person is working and the other person is staying home and raising children. In those cases, our tax system um actually punishes you because if you're on an income and you're you're a wage earner, you're paying potentially top marginal tax rate. your wife who's staying at home has a marginal tax rate um you know could be effectively zero dollars and um you're paying more tax than someone who could be using say a family trust to stream income to husband and wife and utilize the wife's um tax-free threshold. So my suggestion in this case would be to actually create a family tax system where if you are supporting a mom who's staying home having kids then you should be entitled as an employee um as a business owner to actually use your wife's tax-free threshold to reduce your tax. And that is actually something that's going to help men to provide for women who want to stay home and have children. Um there is there going to be push back on that from you know single moms and you know people that are in that situation? Yes. But do I care? No.

[00:05:24]Why don't I care? Because the the standard the most normal way that people are most common way people are having families is essentially husband and wives having kids, husbands supporting wives who stay home for a period before they can come back to work. In those years um I think we can actually do more to incentivize them. I like what he's saying here, Simon. And um I think yeah, overall if we don't actually do something to uh fix the tax system so those marginal tax rates are better for parents and families, we are going to see a situation where people continue to have less kids. Um cuz kids are expensive and people are going to go stop having kids or not have kids. And I think this is the big deal actually. So, I've looked into it and our problem is not that um women are not having enough kids. They do have less kids than they used to. The real problem is we don't have enough women starting to have kids.

[00:06:20]And I think getting them to jump off the cliff um and like go into that. The key there is if there's tax incentives right there at the beginning, once women and families actually have one kid, then they're more likely to have two and three kids. And if you get past that 2.1, then you're going to solve a problem. I do think it is an incentives thing. So yeah, that's my thoughts on that that one. I'm going to jump onto the next one here. This is on the federal budget. So this is some opinion from um Mark Burus just in a in a clip on what he thinks. So let's jump into this one.

[00:06:55]>> Now what I'm annoyed about is that that narrative is wrong.

[00:07:02]This budget will not help younger people get into a home. By the way, the very people who are supposed to have caused this intergenerational inequity, the older people, they've been protected because effectively they've been grandfathered on any gains that they've made to date. Their 50% discount on the capital gain that they're going to make still remains. They will still get that discount.

[00:07:25]>> Okay, I got to jump in there. I like a lot of what Mark Wurus says and does.

[00:07:29]Uh, I think you may have missed the mark on this clip here. The reason is for him to say this is not going to help first home buyers at all and actually reward um people who is meant to hurt, which is people who have property already. I I think, you know, you can't have your cake and eat it too. Um people are coming out and saying the people that are going to be hurt by this are people who have investments, people who have businesses, have wealth, use trust structures um to improve their life and livelihoods for their families. So, how would how could you be in a situation where you actually are going to pay more CGT um you know not be able to utilize bucket companies from your trust uh you know bucket companies and your trust uh force a 30% tax rate on trusts remove negative gearing for existing properties going forward and and then they're still going to be worse off. I I think also there's going to be downward pressure on housing. The the the borrowing capacity for um individuals is what dictates how housing prices move. So if we've got no negative gearing, we've got less incentive for people who are looking to invest in property, but also you got less borrowing capacity. There's been discussions that potentially borrowing capacity for investors could be down up to 20% because you don't take into account negative gearing going forward on existing properties. If that's the case, if banks are lending less money to investors to buy property, that puts downward uh pressure on houses.

[00:09:05]Let's hear him out further.

[00:09:07]>> So, the government didn't want to punish them because they're worried they might lose their vote. So, those people are fine. they're fine, but nothing's happened down the other end of the end of the board. Like the, you know, the books have been pushed down one end of the shop, but the other end's empty.

[00:09:22]>> Okay. Yeah. So, he's saying that um ultimately what we said there that first home buyers are not better off. And what's the other thing you said there is that grandfathering it means that people with wealth are not being touched. I think that's a misnomer as well because the grandfathering pretty much ends. Now if we look at I mean we're going to break down the budget in a moment but if we look at the fact that the grandfathering um ends in 27 going forward gains on properties will not be will not be able to have uh 50% CGT discount. Um so you know all those changes that are coming into play are going to affect people with properties after 2027 and um it's going to affect people with trust and if if that doesn't put downward pressure on houses you know the definitely the interest rate rises we've had two of late um and other cost of living pressures and uh servicing calculations will be impacted when servicing for a bank. So the way it works is the bank will look at how much someone can borrow in order to work out how much they can lend for a property.

[00:10:28]Ultimately, that's what dictates house prices. It's how much can the people looking to buy a property, how much can they afford to borrow. all the work that's being done by this budget, by interest rates going up, by cost of living pressures, I call it work, but basically the the circumstances we find ourselves in will put downward pressure on houses and um I think we'll see Tom Panos's views in this clip here. So, this is the third clip on a review. This is Tom Panos discussing um negative gearing. If you think this budget won't affect property prices, Westpak just called the bluff. Listen to me very carefully. Westpak has just moved first. And I'm letting you know the market just got a very loud warning shot from that bank. And it didn't come from politicians. It's coming now from the banks. Westpak has reportedly told mortgage brokers they will reassess investor loans because of the government proposed negative gearing changes. Read that again. Right? Think about what I'm just saying to you. Even if an investor already had a preapproval, the bank can no longer honor that under the old assessment rules. Why? Because the numbers have changed. For decades, negative gearing was helping investors offset those losses against income.

[00:11:50]Okay, so Tom Panos saying there exactly what we're saying in response basically to Mark Burus. If you have negative gearing coming into play um negative gearing coming out like off the table, the banks in their servicing calcs will lend you less money as an investor. They used to look at that negative gearing cash flow benefit that's money coming back to you because your property was in a loss, your rental property as income and therefore increase your borrowing capacity. So, all in all, we're going to have less investors incentivized to buy property.

[00:12:26]Why? Well, you don't get negative gearing if it's negatively geared. Um, if you do make a capital gain and it's on existing stock, you will not get a 50% CGT discount. So, you'll pay more tax when you sell it. We've got um interest rates going up. We've got bucket companies gone. So, people that used to want to use a bucket company structure to be an investor in property as well, that's off the table. Um, everything looks like it's u pointing towards downward pressure on houses. So, does that help first homeowners get into property? Um, I would say it would help.

[00:13:02]uh doesn't help directly, but indirectly if the cost of housing stagnates or goes down, that's a lower hurdle that a first home buyer is going to have to jump over in order to get into the market. So, do I agree completely with the Albanese budget? Well, no, I don't actually agree with it. But do I agree with the idea that we needed and we need to do something to try disincentivize housing as a as a asset class for investment?

[00:13:31]Yes. Does that budget do that? Yes, it does. It is a less attractive investment than it was before this budget was announced. If you used to be able to buy property goes up over time, you get a 50% discount on the gain. If you're losing money in the short term, you get negative gearing benefit. Now, there is no doubt that that will create a greater incentive for you to invest and speculate on property. what we have is going to be an adjustment or potentially correction as a result of this budget if this all actually does get legislated.

[00:14:07]All right. So, speaking of the budget, I wanted to run you through um the budget work papers that came through and give you my opinion uh breaking down exactly what's changed and how that that will impact everyday Australians. All right, so here we are. This is the uh budget release. one of the um papers that came out from the Treasury. The first thing we're looking at here is tax reform, cutting taxes with a working Australians tax offset. So, the government will deliver a new tax cut for every working Australian taxpayer by introducing $250 working Australians tax offset from 2027 to 2028 income tax year. Okay. Um so this is basically a tax offset for specific um types of income and the types of income are wages and salaries and business incomes for soul traders uh starting from 1 July 2027. What this isn't is a reduction in tax rate. And that's a confusing concept for people to understand, but basically a reduction in tax rate would mean that everyone would effectively pay less tax by $250 no matter how they earn their income. In this case, this is a tax offset which is applied for people who have specific types of income. And specifically, what they're trying to target here is working Australians. So, does this help working Australians pay less tax? Yes. Do I agree that working Australians should pay less tax? Absolutely. So, I think it's a good policy. Do I have any uh negatives on this? Yes, it's not enough.

[00:15:43]Clearly, not enough. $250 is just really not enough of a tax offset to help move the needle on what every um what working Australians are facing in terms of cost of living pressure. All right, let's look at the next one.

[00:15:58]Just actually on that before we move on, um the working Australian tax offset will increase the effective taxfree threshold for income derived from work by nearly $1,800 to $19,985 or up to $24,985 for workers eligible for the low income tax offset. That's a secondary offset that they have access to as well if you have a low income. So in Australia, you're effectively going to be taxfree on $19,985 if if you're a worker. Um $19,000 is not enough for the taxfree threshold.

[00:16:36]The taxree threshold has been sitting at around 15 to $20,000 for my entire life.

[00:16:44]If we were indexing that taxfree threshold, it should be sitting anywhere between 30 and $40,000 taxree. And if you think about it, minimum basic um needs of an individual are at least $30 to $40,000 a year just to survive. Okay?

[00:17:00]So the fact that we're taxing people when they're earning income below what you need as basic subsistence level income is actually ridiculous, right?

[00:17:11]How can we be taxing people when they don't even have enough money to buy food and pay their rent? So, the number needs to increase here. And I I agree with the tax offset 250. I would have preferred it to be about $2,500 or as opposed to that, get rid of the tax offset and just raise the tax-free threshold up into the at 2530 $35,000 mark as a start and then incrementally increase it each year thereafter.

[00:17:39]devil's advocate. Why wouldn't they do that? It's a lot of money. It put blow a hole in the budget and they don't know where to get the money from at this point. So, the money that they're saving at the top end from the capital gains tax and other things is not enough to cover the money that they'd have to give to every single Australian at the bottom end. So, we'd be, you know, maybe tax gas or other exports or things, but right now they don't have a solution for where the money would come from to do that.

[00:18:09]All right, moving on. Now, the next thing I want to look at is um this $1,000 instant tax deduction. So, the government will introduce an instant tax deduction of up to $1,000 from 2026 to 2027 income tax year to make the tax system simpler uh while also delivering more cost of living relief. Okay, so what does this mean? In your tax return, D1 D5, those categories of income are of deductions are deductions that relate to your work. So if you spend money as a employee um on anything that relates to work, you know, travel, stationary, uh motor vehicle, all those types of things, you can claim a tax deduction. What's a tax deduction? Well, it's reducing your taxable income so that you pay less tax or get a bigger tax refund at end of year. But as you know, when you go to your tax agent or you jump online to do your tax return end of the year, you need proof with receipts that you actually spent that money. ATO's come out or or the budgets come out saying if it's anything up to $1,000, you're not going to need receipts going forward. Do I think that's a good thing? Yes, absolutely. Because uh it's going to reduce the requirement for the majority of Australians to actually keep any receipts cuz most people will be sitting on $1,000 or less. So those people don't have to worry about anything. Just claim the $1,000 and you're done. And um for people who are earning more, well, you can still claim if you earn more if you if you have more than that. So people have more deductions than a thousand.

[00:19:34]You just keep your receipts. You can claim anything above and beyond. What I like about this is this highlighted section here. Charitable donations, union and professional association membership fees and other nonwork workrelated deductions can still be itemized separately and claimed on top of the instant tax deduction. So, I think this is essentially how most people are going to be claiming the $1,000 instant asset write off the the $1,000 um instant tax deduction. They'll claim the $1,000 for workrelated and then their their um donations and union fees and other things like that um will be claimed on top. So, I am a fan of that and um it makes in some cases accountants life easier which is a fringe benefit. Now loss refundability reforms for business and startups. I think this one is a really good one. So this is actually um the the we call it the loss carryback.

[00:20:31]So governments will provide tax relief to businesses and startups by reforming the treatment of tax losses. This will encourage investment and sensible risk takingaking and improve the resilience of firms through temporary shocks. So, um, what we're looking at from 1 July 2026, companies with, you know, turnover less than 1 billion, no worries, will be able to carry back a tax loss and offset it against the a tax paid in up to 2 years earlier. Okay? As as long as you've got a franking account balance, which means as long as you've paid enough tax in the past. So, this will help lots of small business owners because if you've made a a million dollar profit this year and you pay tax on a million dollars and next year you make a million dollar loss, um instead of just going into tax losses and having to wait for another future year where you make a gain to use those losses, the ATO is saying you can go get your time machine, jump back in time, come back to this year, and take back the tax you paid already. So what they're doing is they're expanding the time horizon on which you're looking at the profitability of your business. So if you're profitable um in a one-year period, previously that's all the ATO cared about. But now what they're doing is they're looking back before they tax you at a three-year window. This year, last year, the year before, and they're saying, "Okay, over 3 years was this business profitable?" And if that's the case, then they'll tax you. if you made profit this year um but then over a threeyear window you're not taxable or or not profitable then they're not going to tax you or if you're less profitable they'll just tax you less so I think it's good you know a one year a one-year financial year like a one-year period for determining how people or businesses are taxed is very arbitrary in and of itself we just decided a long time ago we're going to do it on a 12-month basis um but there's different time horizons and businesses don't always cleanly operate in that 12 month cycle.

[00:22:30]Sometimes factors in the economy or um you know with the projects you're working on or whatever you're doing um don't fit smoothly into that calendar.

[00:22:38]So this is going to help small business owners just that little bit um with the tax.

[00:22:44]The next tax reform making tax simpler for businesses. So this is the $20,000 instant asset write off for small businesses with turnover up to $10 million. What does that mean? Well, in the past, um, if you buy an asset or capital for your equip, uh, for your business, capital equipment for your business, you would have to depreciate that capital equipment over the effective life of the asset in order to claim a tax deduction. So, if I bought a car which was worth $20,000, I could claim, call it $5,000 a year for four years, as an example, rather than claim that $20,000 uh in the year that I spent the money to buy the car. What would that mean? That would mean I would have to outlay money now and to which I get no tax benefit because I'd have to carry forward um the tax benefit into the future as the car depreciates. Why is this good for business? Well, it's good because it's guaranteeing you the tax benefit now for money spent now. And to be honest, this has actually been in play um for something like 5 years already, but they just keep extending it one year at a time. Um and now they've just put it in to the policy is permanent. So, we don't have to stuff around with it anymore.

[00:24:00]And business owners will always know $20,000 instant asset writeoff is there for them. One thing I don't like about it is it's not gone up. if it's been 20,000 for ages. Um, like with everything else, that should be indexed.

[00:24:11]You know, that should be sitting at 25,000 or 30,000 now as opposed to the 20,000.

[00:24:18]Look, moving on. This is the big ones now in this budget. So, the um the budget has come in and changed the way we do um tax on property. This has got to do with, as we discussed, making it easier for people to buy their homes. So, what have they done? Well, they've attacked negative gearing and they've attacked capital gains tax. So, let's have a look at um the capital gains tax first. So, from 1 July 2027, the 50% CGT discount will be replaced by costbased indexation for assets held for more than 12 months with a 30% minimum tax on net capital gains.

[00:24:55]Okay, guys, this is actually uh unprecedented. We've never had a fixed tax on capital gains in Australia.

[00:25:04]30% minimum tax on net capital gains is a new thing. In the past, I've had questions from clients all the time. Hey John, what's the capital gains tax rate in Australia? How much tax do I pay on a capital gain? If I buy this property for a million bucks and sell it for 2 million, how much do I pay? And my answer was always, you don't have a tax rate on a capital gain. a capital gain is calculated or capital gains tax calculated by taking the gain you made and using your marginal income tax rates and you pay tax based on your marginal tax rate. Well, you still will be cap paying capital gains tax on your marginal tax rates if they exceed 30%.

[00:25:42]But the government's saying at the very least the government's going to take a 30% clip of capital gains. Uh that's that's huge because there's been many times we've had people make capital gains but have no other income and either pay no or very little tax because they're not earning other income. That's gone. If you make capital gains as an investor, you're paying capital gains tax. How do I feel about that?

[00:26:06]Um I I don't know if it's fair. I I would think that everyone should be subjected to the same tax rates whether you made them on capital gains or on income. But that's, you know, that's the way that's going. What's really interesting about this is the introduction of costbased indexation.

[00:26:24]So, if you have a property um and it goes up, you know, um 10% a year, you're not going to pay tax capital gains tax on the 10%. The the cost base is indexed.

[00:26:37]What does that mean? The cost base itself goes up for inflation every year.

[00:26:41]So if inflation is 5% and your gain that year was 10%, you only pay tax on 5%. So in that scenario I just described, you actually get a 50% CGT discount because you're paying tax on 50% of the gain.

[00:26:55]But it's not always going to be 50%. It could be in some cases much more than 50% because we're going to see scenarios especially in the Australian property market where over the next 10 years properties do not go up in value more than indexation would allow. So inflation is going to be anywhere you know 2 3 4 5 6% and in some cases there's going to be properties that are being sold right now that are going to be the same price in 10 years as what people are buying them for. In those cases, those investments, those bad investments will pay no CGT.

[00:27:30]Where this abolishment of the 50% CGT discount is actually really hard for people to swallow and I understand is on shares of your business. So, as a business owner, I started my business for 0. I basically just got up one day, started an accounting firm. I didn't have to pay anyone for it, and I was off and running. Now, if I was to sell my accounting firm, I would not have access to a 50% CGT discount on the sale of those shares. So, as an example, if I sold it for $10 million, there's a potential that I would pay the top marginal tax rate, which is 47%, $4.77 million in capital gains tax on that business. Now, obviously, there's transitional arrangements and um there's grandfathering up to a certain date, but like I'm assuming we're in a postbudget world, right? So if someone started their business tomorrow and went forward, that's the situation. Now a lot of people are talking about that like 47% you know my business partner and all that. There is a lot of people ignoring the fact that we still have small business CGT concessions. So if you've got less than $6 million in assets outside of your family home, you do have access to small business CGT concessions. one of which is a um 50% active asset reduction where if you worked in the business and you meet all the other small criteria for for that concession um you get a 50% reduction on the CGT there. So what we'd often have in the past is a small business owner sells their business less than 6 million assets, we got 50% CGT concession for the 12 months, then we go 50% active asset, you know, so you've gone from 100% of the gain down to 50% down to 25% of the gain and then the rollover into super. We'd make them make a super contribution and effectively they'd pay no tax at all. So is that a bit of a loophole? Yeah, it is. Okay. And that loophole is actually closing now where the small business owner will still get the active asset exemptions, the super rollover and access to reducing the CGT, okay? But not, you know, it's going to get harder and harder to pay no tax on selling your your small business. People that are selling their businesses for much more um than the value of that 6 mill or have more than 6 million assets and and are not eligible for the small business CGT concessions, that's where the real pinch is. And um some people won't care. Some people go, "Well, you know what? They sell the business for 10 mil. They got more than six mill $6 million anyway. Then who cares, right?

[00:30:01]They're rich." Um, but it's not always that that clear-cut. And there's a lot of work and a lot of effort, a lot of years of sacrifice going into building your startup where even if you do sell a startup for 6 mil or 7 mil, um, if you had to actually pay half of it in tax, you would, you know, it it would feel like robbery because you'd be left with not even enough money to buy a house in some places, right? So anyway, I I won't I won't go on with that one, but uh transitional arrangements will limit the impact of existing investments by ensuring that the changes only apply to gains arising on or after 1 July 2027.

[00:30:38]So there is a leeway for people to actually um make some decisions about investments and whatnot. But I essentially what's happening is you won't need to sell your investment in order to lock in the the CGT discount.

[00:30:55]Um if you sold it past 1 July 2027, all the gains up until that point will be taxed using the discount and then the gains after that um would no longer be subject to the discount. Now what's interesting here is new residential properties will be able to choose either the 50% CGT discount or the indexation.

[00:31:16]So there is still the incentive there for people to buy new properties um because they'll still have access to the 50% CGT discount. So I think whilst there's the government's pushing people away from investing in existing stock, um they're pushing people towards investing in new stock. And the idea behind that is they'll increase the housing supply. More people invest in new homes, more developers can build them. There's going to be more homes for everyday people to live in. And that will bring rents down and create more properties for first homeowners to buy.

[00:31:49]Moving on, the second component of the property changes is reforming negative gearing to support new housing supply.

[00:31:58]The government will limit negative gearing for residential property to new builds. Okay, so this is very similar to what we just mentioned with the CGT.

[00:32:06]There is a push towards new builds.

[00:32:08]People in the past would buy existing properties and they'd pay way too much for them and rent them out for, you know, as much as they can, but they would the properties would be so expensive that they would be negatively geared. Fundamentally, they would be spending more money on the holding of that property with interest and costs than what they were receiving in rent.

[00:32:31]In the past, you can take that loss and it and apply it against your wage income in order to get a bigger tax refund.

[00:32:38]Now, you can only apply those costs against other rental income. So, no one is going to want to be negatively geared anymore. What are you going to do? Well, you're going to look for properties that are cheap with a really good rental yield. Or you're going to look for double income or triple income properties, dual key apartments, house and granny flat house and uh you know or uh a property you can split and have two prop, you know, dual occupancy, two properties on there, rent them both out.

[00:33:03]Basically, what if your property or your investment is going to be high yield, that's going to become the bee's knees.

[00:33:10]That's what everyone's going to want to go after. If yours is highly negatively geared and expensive area with low rent and the house needs lots of work, no one's going to want your investment property. It's going to be very hard because if you're going to be buying those properties still, the reason you're going to be doing it is a your main residence because you want to live there or b you fully speculating on the capital growth of that property. Like you think it's a blue chip area and you know that that area is always going to go up and it's going to double in price.

[00:33:37]So you don't care that you're not getting a negative gear and benefit. But I really think those types of blue chip properties and and those expensive properties will take a hit because of this change.

[00:33:49]All right, moving on from that, the next biggest thing is the changes to tax on discretionary trusts. The government will introduce a 30% minimum tax on discretionary trusts. Again, like the CGT, we've never had a minimum tax on discretionary trusts. How were trusts taxed? Well, just like with capital gains, um it was based on the marginal tax rates of where the money ended up.

[00:34:11]So, a trust has the option to distribute money to any individuals in a family group, uh mom, dad, adult kids, um bucket company, bucket companies are going, that's another thing. And then those individual taxpayers will pay tax based on their marginal tax rates. In many cases that would have been zero dollars, you know, if they're under the taxfree threshold or rates that were lower than 30%. Now, the trustee of the trust is going to pay a 30% tax and then distribute those distributions with that tax credit. If you receive that into your personal name with that tax credit and you're an individual, okay, that's fine. But if you're a company, you're not not actually entitled to that credit. So what does that mean? It means that bucket companies, basically companies that receive distributions from trusts, are going out the door. We're not going to be advising clients anymore to set up bucket companies because we will be creating in that scenario double taxation where the trust pays 30% and then the company pays 25 or 30%, you end up paying 60% tax. From 1 July 2028, trustees will pay a minimum tax of 30% on taxable income. Um now what's good about the change is that they've given us time to adjust and pivot. The government will provide expanded rollover relief for 3 years from 1 July 2027.

[00:35:37]So we've got years to restructure people into a new holding company or a new structure so there's no double taxation or so that we can replace those discretionary family trusts with holdings companies. Um, and they've said here, so you can restructure into another entity such as a company or a fixed trust.

[00:35:58]Um, so all in all, that's that's the big changes in the budget.

[00:36:04]Um, and I think people that are heard are people that are going to be using bucket companies, people that use negative gearing, and investors that were previously able to use 50% CGT discount. And then fourthly, business owners who are growing their businesses as their main asset and will not be able to get a discount when they sell their business if that's their retirement nest egg. Given the budget changes, we've had to revisit the way we're doing structures. What I've got here is essentially the old and new setups for new business owners. People come into our office every day looking to start a new business. The first question they have for us is, "How should I structure my new business acquisition?" Well, in the past, we'd advise this structure on the left. We'd say to them, first things first, you can operate as a soul trader or a company, but we recommend company.

[00:36:52]The reason we'd recommend company is because of limited liability and the access to a fixed tax rate of 25%.

[00:37:00]But don't just set up a company. If you want asset protection, set up a family trust with a corporate trustee to own the shares of that company. So then we can distribute out the profits from your company into a trust. The tax there between the company and the trust well the would be the 25%. You pass on that credit into the trust. Then the trust would have the discretion to stream those profits either to yourself or family members to pay the least amount of tax possible. Now the trust formally had a 0% tax rate. So now that there's a minimum 30% tax on trusts uh that really changed the way we look at these structures also the fact that negative uh the fact that capital gains tax discount is disappearing change the way we look at this structure because if you were to sell this business and you push the profits into the trust then ultimately when there's no 50% CGI discount on the shares those distributions would end up in the hands of an individual and that individual could pay 47% tax. On the right side is our new solution for new businesses and what we've done is we've replaced the corporate trustee and trust structure with a holdings company. The holding company is a solution or an interim solution partway solution for us. Uh and achieves a few things. The first thing it achieves is that if you were to sell the underlying trading company, rather than the profits from that sale going through the trust to into the name of an individual, it would go into the holdings company and you could pay tax at the 25% tax rate or 30% in some cases. Then what you could do is retain the profits in the holding company and then and then dividend them out to individuals over time utilizing their marginal tax rates each year. So you stay under the 47% tax rate. So it might take a number of years to eventually do that. Or you might if there's too much profit and you can't dividend all the money out over time, you might then start investing in certain investments through your holding company, right? Another business, shares, properties, whatever it may be.

[00:39:17]Now in this case, we were deciding whether or not to stop here or to still use a family trust. But we decided that for everyday small business owners, the cost of setting up both trading company, holding company, and a family trust on top of all that um is probably too exorbitant. Uh and it' be case by case assessment if we deviate from the standard advice. So looking at this new structure versus the old structure, um asset protection, is there asset protection? Well, asset protection is available in this new structure to some extent because the trading company and the holding company have limited liability. That means if anything went wrong at either level here. So say in the trading company if something went wrong with employees or creditors or suppliers or or uh debtors not paying you, we could come in liquidate this company and have no issues with the individual's assets being touched. So if this individual, you're the business owner, you own your home and there's a liability that's associated with your business and you're not personally liable because you know you haven't personally guaranteed it, then we could come and liquidate this company and we've protected effectively your assets here. Some people have been arguing that this new structure on the right isn't as effective in asset protection as the family trust asset protection. I'd probably say there's some degree of truth to that. The reason is if something goes wrong at trading company level um we can still liquidate the company here the same as we would here but the argument is the assets themselves of the business are protected more by a family trust ownership because there's a discretionary element of um ownership here in the family trust which makes it hard for third parties to attack these assets when the individual themsself are subject to litigation. So you know this is they'll going a little bit into the legalities of it, but essentially individuals who own assets via trusts have been seen in some circumstances historically to be able to protect those assets from their liabilities. Okay? Whereas on this right side here, uh there's a direct fixed interest from the individual into the holding company and the trading company.

[00:41:36]So if anything happened to this individual and they go bankrupt, there's no chance that this holding company or trading company will be protected. So if the individual goes down, the business will go down. Whereas in this case on the left, that's not guaranteed. Now being in practice for 20 years, let me tell you, I see where liability comes from. And more often than not, for a business owner, the liability is coming from the business.

[00:42:01]So what we're trying to do is limit the business liability seeping through that corporate veil to the individual. So we can still actually achieve a lot of asset protection with the setup on the right. But is it as good as asset protection of having a family trust? No.

[00:42:17]But from a tax perspective, it's the best we can do right now in the sense of keeping it affordable for the for the business owner. Now it is going to be cheaper to maintain this structure on the right where where and cheaper to set up as well. All right. Now I want to jump into a variation of that which is where trusts would still be useful and where we would sometimes include them.

[00:42:43]So I've got here the old setup again on the right. So we got two individuals in the family. They own trustee company and family trust which owns a trading company.

[00:42:55]This was the old setup. And why was it beneficial? Well, it was beneficial where we would stream income. Let's say you've got one individual that mainly works in this trading company down here and they make after all expenses about $300,000. What we could do is we could stream that profit from the trading company into the family trust. And then the family trust after paying the first individual say a salary of 200 or 190,000 they'd stream the rest of that profit via dividend um and then do a family trust distribution to the spouse that might be staying at home and have no income whatsoever. And in that case, instead of the first individual paying 47% tax on that extra say$1 $110,000 of profit from the business, the second individual would pay about 50 or 60,000 on that, you know, effectively 30 35% tax. So that is still a possibility where we can bring the tax from 47% down to say 30%.

[00:43:59]Even postbudget. So in the new setup in some certain circumstances where there is going to be high profitability and an individual in the family group who is making no or low income, we would advise the trading company to be owned by a holdings company and the holding company to be owned by a family trust and then that family trust can then distribute to that um secondary individual. Now, we're going to then in that setup effectively bring the tax rate down from 47 to 30%.

[00:44:32]And we're going to achieve the uh benefit where we can cap um the gain on the sale of this property at the holding company level to the corporate tax rate if we want and we can still stream profits through to to individuals. Now, why wouldn't we make this setup, which is my personal setup right now, um the the setup that we put we do for everyday business owners? Because setting something like this up is going to cost you, you know, 7 8 grand or, you know, whatever you pay your account to set up.

[00:45:05]And then the ongoing compliance costs, ASIC fees for the for the three companies, you know, more tax returns, like it's going to we're going to have to make sure that we can see or foresee a tangible benefit to the client in utilizing the second individual or other family members in their group to reduce the tax rate. So the family trust is not gone. The family trust isn't buried for everyone, but you know, we're going to see probably an uptake of family trusts at one quarter of the rate that we used to see them taken up to own businesses.

[00:45:38]Uh I want to actually pivot to one more trust uh structure diagram I have for you. This is where family trusts can be utilized in buying properties. Well, what do we have here on the top? We've got an individual. That individual has the holdings company and the trading company. standard setup. And what they're trying to achieve is to buy an investment property using their profits from their company. So what does that mean for this particular person? Well, their trading company will make a profit and pay dividends into a holdings company. That holdings company can loan the money to a trust. So trustee company and family trust. These two units on the right make up a a family trust. Okay.

[00:46:25]And that family trust can then buy the investment property. All right. Now, div 7A loan company to trust that has to be repaid. And typically this loan from the trust to the company has to be repaid in 7 years. But there is a provision in the division 7A legislation where we can put security on this property and pay that loan back over 25 years. That means that you're going to be able to pay it off u a longer period similar to you would to a mortgage to a bank and the interest that this trust is paying back to the holdings company is deductible for the trust. Okay, deductible for the trust assessible in the holdings company. Why would you want to do this? Well, remember an individual tax rate up here is 47%. So if the money from the trading company gets taxed at 25% and it's taxed at say 25% in the holding company for us to put the money in the individual's name, we'd need to pay topup tax of 20% 22% and then there'd be less money to go back into the trust to buy the property.

[00:47:37]Okay? But if we loan it across, we avoid paying the top up tax. Okay? We do a div 7a loan agreement and you effectively can buy the property sooner because you've got more money available to you after tax. So you can actually be your own bank if you're a business owner that makes enough money. Let's say you're a business owner and you made a million dollars of profits. You pay tax at 25%.

[00:48:03]You're left with 750. You loan the 750 to your trust. your trust buys a property and instead of taking a $750,000 loan from the bank, you've taken a $750,000 loan from your business and you're paying it off and you're getting a tax deduction for the interest as you do it. Now, why would someone want to do that? Clearly, it's you can buy a property sooner with less tax using trust and your and your trading company and profits. What's going to be the downside of this structure? Well, you need to take security on the property in order to do the loan. And if you didn't have enough money to buy the property, then you're going to also going to have to get a bank loan to make up the rest of the money. If you need to do that in this scenario, the banks, you're going to speak to your bank and it's case by case. But some banks don't like that you've already taken a mortgage on the property. They want to take the only mortgage on that property.

[00:48:54]So, they don't want to take a second mortgage. So, is it ideal for everyone?

[00:48:58]No. But for business owners that don't want to pay a shitload of tax before they go buy investment properties, as you can see, we can still utilize the 25 year div 7a loan for them to actually buy properties with their own money. And the family trust is still in play. Why would I like to use a family trust here as opposed to a company? And this is the key and this has got to do with the budget. It's because the budget has introduced inflationadjusted indexation.

[00:49:29]That means like we've said that if the cost base of the pro if if you sell a investment property and uh you don't have access to the 50% CGT discount, you can reduce your capital gain by indexing your cost base. You cannot do that in a company. Indexation is only available to individuals and trusts, not going to be available to companies. So, if you have a a company buying your investment, that's probably the could be the best option for you in some circumstances.

[00:50:00]But, if you're looking at a long-term asset that's only going to go up similar to the rate of inflation or maybe a little bit more, and you do that through your company, you're locked in to have to pay the corporate tax rate. You're going to pay your 30% tax. But if you do it through the family trust, you're going to be able to potentially pay in some cases no capital gains tax.

[00:50:19]And no capital gains tax is always better than 30%.

[00:50:23]So this is the scenario where we're still going to be using family trust as for investments. And um I think it's a good structure worth looking at. Guys, if you enjoy this podcast, please leave a comment uh like and subscribe. And also if you got any questions you want us to address, please let me know. We'd love to answer your questions and engage with you guys as we keep going with the CEO breakdown.