From Hock & Susan:
As the holiday season approaches, we wish to inform you that our office will be closed from Monday, 23 December 2024 to Sunday, 5 January 2025. We will reopen and resume normal business hours on Monday, 6 January 2025.
During this time, our team will have limited ability to respond to inquiries or manage any ongoing work. If you have any urgent matters, we encourage you to reach out to us before the shutdown period to ensure we can assist you in a timely manner.
We would like to take this opportunity to thank you for your trust and partnership throughout the year. We wish you and your family the very best for a safe and happy festive season and a prosperous New Year!
We look forward to working with you in 2025.
Warm regards,
Hock & Susan
US Election
Donald Trump's re-election and Republican control of Congress signal a shift in US economic policy, with potential effects across global markets and asset classes. Key policy goals include making the 2017 tax cuts permanent, reducing corporate tax rates and imposing tariffs on imports, particularly on imports from China. These moves introduce significant uncertainty for global trade and are likely to drive inflation higher, impacting interest rates and bond yields worldwide. Analysts expect the outcome of Trump’s policy sequencing will be crucial: a focus on tax cuts and deregulation could spur short-term gains in the US market, but a quick turn to protectionist tariffs could intensify volatility.
In the bond market, Trump's policies are likely to place upward pressure on US bond yields due to increased fiscal spending and inflation risk. Higher yields could reduce the appeal of US equities, particularly for growth companies, which are sensitive to rising borrowing costs. This environment may support sectors like energy and financials, which stand to benefit from reduced regulation, while placing additional pressure on alternative energy and high-growth tech stocks. Additionally, Trump’s tax cuts may favour US small-cap stocks, as they typically derive more revenue domestically and benefit most from a lower corporate tax rate.
For Australian investors, global trade tensions pose a unique risk. If Trump's trade policies weaken China’s export market, Australia’s economy could feel the impact, particularly in resource and commodity sectors, which rely heavily on Chinese demand. A stronger US dollar, driven by higher bond yields and potential tariff hikes, may lead to a weaker Australian dollar, potentially benefiting Australian exports but raising the cost of international investments.
Looking at alternative assets, the increased economic uncertainty could also boost interest in cryptocurrencies like Bitcoin, as Trump is more supportive of the crypto market. Gold and other defensive assets might see increased demand as investors look for stability in a volatile environment. While the US share market could rally on initial optimism about tax cuts and deregulation, any extended tariff wars would likely shift investor sentiment, leading to a choppy outlook for equities and reinforcing the need for diversified portfolios in the months ahead.
Interest Rates
The US Federal Reserve recently cut interest rates by 0.25% (following a larger 0.50% cut in September), bringing the current rate to 4.5% - 4.75% amid signs of slowing economic growth. This move contrasts with the Reserve Bank of Australia’s decision to hold rates steady at 4.35%, as Australia continues to navigate sticky inflation and cost-of-living pressures. While the Fed’s cut signals a more cautious approach to stimulate the US economy, the RBA remains vigilant, holding rates to curb inflation and stabilize the domestic economy.
Donald Trump's election win will have significant implications for interest rates worldwide in 2025. Trump's proposed policies, including tax cuts, higher tariffs, and increased government spending, are likely to create upward pressure on inflation around the world. As a result, central banks, including the RBA, may adopt a more cautious approach to cutting rates in response to the potential inflationary effects of US policy changes.
This means that while there may be some hope for rate cuts in the future, they could be slower and more measured if global inflationary pressures persist.
Future board meeting dates:
Reserve Bank of Australia | US Federal Reserve |
9 – 10 December | 17 - 18 December |
17 – 18 February | 31 January - 1 February |
31 March – 1 April | 21 - 22 March |
19 – 20 May | 2 - 3 May |
7 – 8 July | 13 - 14 June |
RBA Key Economic Snapshot (6 November 2024)
Source: RBA
Aged Care Changes
On 12 September 2024 the Government announced and introduced legislation to effect significant aged care reforms, intended to be effective from 1 July 2025 (with the exception of the increased Refundable Accommodation Bond cap from $550,000 to $750,000 which takes effect 1 January 2025).
The Government announced grandfathering provisions for those in residential care at 30 June 2025, who will generally continue to be subject to the current rules. Grandfathering measures have also been announced for those receiving or assessed as eligible for home care at 12 September 2024.
As bipartisan support for the reforms has been announced, the reforms are expected to be legislated. It is important to note that at this time the proposed measures are not yet law and could change prior to implementation.
Key Reforms:
Accommodation payments
Accommodation price cap - increased from $550,000 to $750,000;
Introduction of a retention amount - 2% p.a. of lump sum accommodation payments for a maximum of 5 years (10%);
Indexation of Daily Accommodation Payments (DAPs);
Refundable Accommodation Deposits phased out from 2035.
Ongoing fees
Introduction of a new means tested ‘Hotelling Contribution’ of up to $4,580.75 p.a.;
Means tested care fee replaced by a new ‘Non-Clinical Care Contribution’ of up to $36,923.40 p.a.
Current Rules
New Rules
Case study example:
Mary (85), a single part pensioner, sold her home and paid a $550,000 RAD in full. She has $700,000 in a bank account and a part Age Pension of $19,302 p.a.
Costs of residential aged care | Current rules | Proposed rules |
Basic daily fee | $23,203 | $23,203 |
Hotelling contribution | N/A | $4,581 |
MTCF / NCCC | $18,035 | $36,923 |
Retention amount (applies for 5 years) | N/A | $11,000 |
Total (first year) | $41,238 | $75,707 |
Source: Challenger, based on social security and aged care rates and thresholds as at 20 September 2024.
Transfer Balance Cap Indexation
The $1.6 million transfer balance cap commenced in 1 July 2017 and is a limit on the total amount of superannuation that can be transferred to a retirement phase pension account. The benefit of moving funds from the accumulation account to a retirement pension is that the tax rate on earnings and capital gains reduces from 15% to 0%.
Individuals with existing pensions or have previously commenced retirement pensions from 1 July 2017 will have their own individual transfer balance account. Your individual caps/allowance can be viewed in the ATO portal on your MyGov dashboard. For individuals who are yet to commence a pension account the 2024/25 cap is $1.9 million.
From 1 July 2025, this cap is likely to be indexed to $2.0 million.
Given the advance notice of the increase, individuals looking to start a retirement pension need to consider whether to do so in the current financial year and receive tax benefits now or wait to benefit from the potential higher transfer balance cap from 1 July 2025.
Division 296 - $3 Million Super Tax - Effective 1 July 2025
Division 296 proposes an additional 15% tax on the earnings of super balances over $3,000,000 (unindexed cap). Whilst legislation has been passed in the Lower House, it awaits Senate approval. If/when approved, the policy will commence on 1 July 2025 and apply from the 2025/26 income year onwards.
Note that this specific tax may not require immediate action as the total super balance will only be assessed on 30 June 2026, not 1 July 2025.
For example, an individual with $5 million in their super throughout the year who withdraws $2 million just before 30 June 2026 would not be subject to Division 296 tax for the 2025-26 financial year.
The concept of “adding back withdrawals” applies to a different aspect of the calculation - specifically, to determine the superannuation earnings for tax purposes.
For example, if the super balance at the beginning of the year was $4 million, grew to $5 million, and withdrawals of $2 million are made by 29 June 2026, to leave exactly $3 million, the earnings for tax purposes would be calculated as $3 million (balance at year-end) plus the $2 million withdrawn (added back), minus the $4 million at the start of the year. This would result in $1 million in taxable earnings.
However, note that a key feature of this tax is that it only applies to a portion of these earnings. The taxable portion is determined by the amount of super that exceeds $3 million at the end of the year. If the super balance is exactly $3 million, the taxable portion is zero, meaning no tax is owed. Even if the balance slightly exceeds $3 million, the additional 15% tax on a small proportion of earnings will generally result in a modest tax liability, even if earnings are substantial.
It is also worth noting that the Federal Opposition has declared that they will rescind the tax policy should they return government at the next election which needs to be called by May 2025. As such, we suggest not rushing into any asset sale or fund withdrawal at this stage.
Our Services
Should you, family members or friends require personalised financial advice or wish to explore our range of services, including investment strategies, retirement planning and risk management, please do not hesitate to reach out or to pass on our details. We are committed to assisting you make informed decisions and achieving your financial goals. Your financial well-being is our priority, and we look forward to continuing this journey together in 2025.
The information on this site is general in nature. It does not take into account your specific needs/circumstances into consideration. You should review your financial position, objectives and requirements and seek financial advice before making any financial decisions.