Stock down 15% on Rudd’s carbon policy
Wall Street is waiting on the Federal Reserve boss Ben Bernanke and his testimony on Capitol Hill tomorrow. What this guy says about tapering could be a big market maker, or breaker, but even in the face of this unknown, the sell-off was small. But locally, the promises of Kevin Rudd are set to upset a lot of shareholders with shares in a company called McMillan Shakespeare off 15 per cent following the PM’s killing of the carbon tax for an emissions trading scheme (ETS).
In fact, the decision forced the shares to be placed in a trading halt!
And the question is, what other companies could be threatened by a pre-election, prolific, promising Prime Minister? This is one reason I try to buy stocks that are less likely to have sovereign risk, but it’s hard to avoid the long-arm of government — ask the miners, though the big guys did a good job hoodwinking the Gillard Government with the latest version of the mining tax!
So, let’s get to the details of this sad, stock story.
McMillan Shakespeare is a car and salary packaging company and lots of my experts on my Switzer program on the Sky New Business channel love the stock. It has been a great performer.
In a nutshell, to help pay for the switch from a carbon tax to an ETS, the new Treasurer, Chris Bowen will crack down on the car leasing deals that’s projected to hit 320,000 taxpayers.
And the likes of Ford and Holden will see this as a kick in the guts as many of their customers use salary packaging to buy new cars.
Keep a logbook
The Government wants to save $1.8 billion by making everyone who wants to claim a tax deduction from car use to keep a logbook to prove business use. Under the alternative statutory method, there is an assumption of a set amount of business to private use, which affords the car-leasing customer some tax relief. By scrapping this method, money is saved to offset some of the losses from killing the carbon tax.
These fringe benefit tax (FBT) changes will apply to all new contracts entered into from the time of the announcement and start on April 1, 2014. The plan is to prevent people claiming a tax concession for personal use of a salary-sacrificed car.
In abolishing the statutory formula method, the fringe benefit, which was calculated at the cost of the car multiplied by 20 per cent, will be linked to a logbook method where actual business and private use will have to be recorded.
Now those with salary-sacrificed or employer-provided cars will have to use the operating cost or logbook method or they will lose their tax advantage.
Tradespeople and others who drive utes, etc, are not victims of FBT but a quick call to your accountant might be a good idea.
This out-of-the blue decision, which by-passed industry consultation, will be used by Kevin Rudd’s opponents to point out how controversial Kevin can be. If you are in the car industry or you hold McMillan Shakespeare shares, you could be sorry that Kev replaced Julia as PM!
Wall street falls
On Wall Street, the Dow lost 32.41 points or 0.21 per cent to 15,451.85 while the S&P 500 gave up 6.24 points or 0.37 per cent to finish at 1676.26.
On the earnings front, Yahoo and Coca-Cola disappointed, but Johnson & Johnson beat the Street tips on revenue and earnings. Economy-wise, homebuilder confidence hit the best level since January 2006, which was before the letters GFC were even thought about! And it was big jump from 51 to 57 on the NAHB/Wells Fargo Housing Market index.
Also industrial production was up 0.3 per cent in June, which is another good sign for the US economic recovery and stocks down the track.
But today K.Rudd will get a lot of airplay with opponents bounds to use the old line about the old and now new PM, which goes like: “Here we go again!”
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