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Your Franking Credits are Safe.

By Jack Wellings

The cloud has lifted. You are not going to lose your Franking Credits. What a boost for the moral - and financial well-being - of retirees!

The retention of Franking Credits means there will be no reduction to pensions and share-dividend income.

The depressing prospect of up to a 30% reduction in share dividend income that has seemed to be a foregone conclusion for the past several months suddenly disappeared late Saturday evening.

All retirees - but especially low-income retirees - were in grave danger of experiencing up to 30% reduction to their living income. This will now not take place.

Politics notwithstanding, we regard this as a victory for common sense and honesty.

Also bear in mind that it wasn’t just investment Income that was going to be affected. Capital Gains Tax was also going to increase - by a massive 50%! That isn’t going to happen either.

Neither will we see the loss of tax deductibility of negative gearing.

(Negative gearing essentially means that where the ‘running costs’ (mortgage interest, maintenance, rates, insurance, etc) exceed the rental income of the property, then the investment runs at a loss; such loss then being offset against the taxpayer’s other income earnings.)

We should recognise that tax deductibility of negative gearing has been an underlying principle in the supply of rental housing in Australia for the past half-century or more. We should also recognise that the vast majority of residential property investors are not, as often portrayed, ‘the top end of town’, but are typical Mum & Dad investors seeking to provide for their own and their children’s future financial security.

And let's not ignore the salient fact that this ‘loss of taxation revenue to Treasury’ is actually ‘money in the bank’ for Treasury, as Treasury ultimately gains revenue - by Capital Gains Tax - when the property is eventually sold. Up to 23.5% of the gain, in fact.

Couple the loss of tax deductibility of negative gearing with a 50% increase to Capital Gains Tax, and why would anyone have wished to invest in residential real estate?

In summary, it's a case of the classic maxim “If it ain’t broke, don’t fix it.” Thank goodness, we didn’t.

So here’s to the continuing prosperity of our great nation, and thereby to the financial security and well-being of each of us who are privileged to be Her beneficiaries.

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