Hi Readers,
You will note that we released a Special Interim Edition Newsletter last Wednesday to provide some commentary surrounding current global events and its impacts. With this, I wanted to write a further piece, in response to some topical issues which have arisen and questions we have received following last week.
Thanks to everyone who provided feedback on last weeks’ release. I appreciate the comments and please don’t hesitate to continue to send through questions or topics you would like to get some clarity / answers on.
In addition to my monthly Chairman’s Commentary, we will endeavour to add some of these single, smaller style pieces into our Insights program – therefore please feel keep an eye out as these are released.
To get the major topic out of the way first up – the conflict in the Gulf is still ongoing. From what is being reported through media outlets, it does not appear to conclude anytime soon. However, someone has mentioned a potential end by the close of the month – let’s go with that to start with.
If the Strait of Hormuz stays shut, oil will stay high, and inflation will remain elevated. Equities sway and potentially fall. Interest rates go up (yes it did happen). More on that below.
Pressure will build on President Trump more than Iran, the longer this conflict goes on. Watch out for the armed forces escorting ships through the Strait. They start doing it, I am sure they will need to do it for a very long time. My take – oil is higher for longer. See sentence above.
The RBA increased interest rates by 25bps to 4.1%. It was a split vote of 5-4 – so a very tight decision.
Some heads went down the ‘oil is higher only due to the conflict’ viewpoint, others were potentially conscience of a Federal Budget coming up. My guess? Majority thought “inflation is already up, it is going to stay up for a period of time that is indeterminate”. Governments keep spending and are not offsetting anything via productivity.
I am never the smartest guy in the room, but even I see the RBA message coming loud and clear – STOP SPENDING. This interest rate rise had very little to do with Iran and a lot to do with Australia.
Banks would have already passed on the interest rate rise by the time you are reading this article. The ASX was up post-RBA announcement – both Banks and miners. Equities might swing painfully from up to down whilst the conflict exists but will swing back up sometime in the future. Make sure you are in the markets when it happens.
More interest rate rises to come – potentially May – but may be more second half of year.
Headlines and commentators will start questioning whether little taps on interest rates will be sufficient to slow down the economy. Australia is only one interest rate rise away from being back to the 2024 peak of 4.35%. Inflation is not slowing down, so Australia may very well go through this previous peak. That will impact everything from home values, business investment and Div7A loans.
Some updates on ATO and taxation activities. The ATO has reminded those who use Trusts that the amnesty on penalties is closing soon. The amnesty applies to historic mistakes that may have been made all the way back to 1999 on Trust Distributions and Family Trust Elections. This is a whole topic in itself and something our team will be assisting clients with during the Tax Planning season. Briefly, it is about where a “test individual” is nominated as the anchor for distribution of earnings. Perhaps by using this “test individual” certain entities/individuals have received trust distributions that they should not have, and family trust distribution tax should be paid.
Div 296 Tax on Superannuation Earnings for members with account balances above $3m has passed Parliament and awaits Royal Assent.
In summary, Div 296 reduces the tax concessions for individuals with a large Total Superannuation Balance (TSB) from the FY27 income year onwards by imposing a tax of:
- 15% on realised earnings based on the percentage of the individual’s TSB exceeding the $3m threshold and
- A further 10% on realised earnings based on the percentage of the TSB exceeding the $10m threshold.
Please note that these additional tax percentages are applied on a sliding scale and not a flat rate.
For those clients who believe they are impacted by the introduction of Div 296, please don’t hesitate to contact our team to discuss options and strategies.
Another joyful business imposition starting up on 1 July 2026 is Payday Super requirements. It is real and happening, so please do not bury your head in the sand, it is a tough cashflow and administrative burden being placed on everyone’s business. There are penalties for missing payment deadlines, so please discuss your cashflow requirements with your AGR advisor sooner rather than later.
For businesses that are used to paying their Super Guarantee amounts on a quarterly basis – forget it – super is paid on each pay run. If you are paying employee wages on a weekly or fortnightly basis, please start getting familiar with paying your superannuation entitlements now on a more regular basis (at least monthly) to get an understanding of cashflow impacts.
We have drafted an updated Payday Super Insights article, which will be released as part of our monthly Newsletter next week – please be sure to review the contents of the article to familiarise yourself with the upcoming changes and appropriate action needed to be undertaken.
Further, I just wanted to touch on some tax considerations that are happening at the moment. It is no secret that the upcoming May 2026 Federal Government Budget will have tax announcements of some kind, most likely around Capital Gains Tax. However, there may be other topics like Negative Gearings, exclusions to NDIS, and the like. Nothing on productivity, so don’t get excited about economic growth.
What I did find interesting, was the Teal member for Wentworth – Allegra Spender – put out a tax paper (73 pages) on fixing intergenerational inequality and transferring the tax burden of Australia onto those they no longer see as voting for them.
The main points of Spender’s White Paper were to reduce the CGT discount from 50% to 30% (something that may occur in the May 26 Federal Budget), tax trust distributions at a minimum rate of 27.5% to deter income splitting, only allow investment losses against investment income and not salary and wages (in effect remove Negative Gearing). All this to allow a cut in the individual Marginal Tax Rate from 16% to 13% and then all other individual Marginal Tax Rates by 2.5c for every dollar earned.
I don’t know how the above will allow a fall in house prices so a younger generation can afford a McMansion.
This is not the platform to discuss the benefits/costs of intergenerational inequality – I will leave that to other keyboard warriors with faster finger skills and spare time than myself.
What I do know is that tax changes are coming – good or bad – and our task is to assist our clients navigate what is put in front of us.
We have all been through conflicts, tax changes, pandemics and the like, and we are still here fighting and growing (feels tough sometimes) -so never give up. Let’s see what next week brings.
For any further information on the commentary above, please feel free to contact our team – who would be happy to assist where possible.
Author: Ian Walker – Executive Chairman of Archer Gowland Redshaw