Tax policies to consider ahead of the federal election

With a Federal Election looming, tax policy is emerging as a key battleground for the major parties.

At the time of writing, we understand that the following are the tax policy areas likely to affect individuals, businesses, and investors:

 

Corporate Tax Rate

 

Coalition:

Legislated – A reduction in the corporate tax rate for companies with an aggregated turnover of less than $50 million:

• 27.5% for the 2019-20 income year
• 26% for the 2020-21 income year
• 25% for the 2021-22 income year and beyond

Proposed – A reduced corporate tax rate for all companies with a turnover of more than $50 million with a target rate of 25% by 2026-27.

 

Labor:

Labor proposes to maintain a company tax rate of 30% for entities with turnover exceeding $50 million.  However, they have supported tax cuts for businesses with a turnover of less than $50 million which will have their tax rate reduced to 25% by 2021-22.

 

Individual tax rates

 

Coalition:

Legislated – A reduction in personal tax income tax thresholds over the 2018-19, 2022-23 and 2024-25 income years.

• Stage 1: From 1 July 2018
  • Increasing the top threshold of the 32.5% tax bracket from $87,000 to $90,000
  • A low income tax offset (LITO) of up to $445
  • A low and middle income tax offset (LMITO) of up to $530 with an eligibility threshold of up to $125,333
• Stage 2: From 1 July 2022
  • Increasing the top threshold of the 32.5% tax bracket from $90,000 to $120,000
  • Increasing the LITO to up to $645
• Stage 3: From 1 July 2024
  • Increasing the top threshold of the 32.5% tax bracket from $120,000 to $200,000

Proposed – Announced in the budget measures on 2 April 2019

• Stage 1: From 1 July 2018
  • Increasing the LMITO from $530 to $1,080
  • Increasing the base amount of the LMITO from $200 to $255 per annum
  • Increasing the eligibility threshold for the LMITO from $125,333 to $126,000
• Stage 2: From 1 July 2022
  • Increasing the top threshold of the 19% tax bracket from $37,000 to $45,000
  • Increasing the LITO to $700
• Stage 3: From 1 July 2024
  • Reduce the 32.5% tax bracket to 30%, and eliminate the 37% bracket
  • The 30% bracket will range from $45,001 to $200,000

Labor:

Labor has announced they will match Stage 1 of the proposed tax cuts for people earning up to $126,000 a year and increase them for those on less than $40,000 a year.  However, they have “great reluctance” about supporting Stages 2 and 3 of the tax cuts.

Labor has also proposed reinstating the 2% budget deficit levy until the budget is in surplus.

 

Business asset depreciation

 

Coalition:

Legislated – The current instant asset write-off threshold scheme and threshold is legislated to continue until 30 June 2020.  On 4 April 2019, the Treasury Laws Amendment (Increasing the Instant Asset Write-Off for Small Business Entities) Bill 2019 was passed which increased the threshold of the scheme to $30,000 and expanded eligibility to medium-sized businesses with a turnover of less than $50 million.

 

Labor:

A new Australian Investment Guarantee for businesses to allow for an immediate 20% deduction on the purchase of any new eligible asset over $20,000.  Tangible assets such as machinery, plant and equipment as well as intangible investments such as patents and copyrights would be eligible.

 

Medicare Levy

 

Coalition:

No change to the current Medicare Levy which will remain at 2%.

 

Labor:

An increase to the Medicare levy from 2% to 2.5% coupled with a more generous Medicare levy arrangement for lower paid workers than is currently in place.

 

Negative Gearing of Investment Properties

 

Coalition:

No change to the current arrangements for negative gearing of investment property.

 

Labor:

Scaling back negative gearing so that it is only available for investments made on newly constructed housing. These changes are expected to take effect from 1 January 2020.  Investments made before 1 January will not be affected by the new legislation.

 

Capital Gains Tax Discounts

 

Coalition:

No change to the Capital Gains Tax (CGT) discounts which are currently 50% for individuals and trusts and 33.33% for complying superannuation funds.

 

Labor:

Halving the CGT discount to 25% for individuals.  The new policy will only apply to investments made after the policy is legislated. This policy will not apply to investments made by superannuation funds or to small business assets.

 

Tax on Discretionary Trust Distributions

 

Coalition:

No change to the tax arrangements for discretionary trust distributions which are currently taxed at the beneficiary’s marginal income tax rate.

 

Labor:

A minimum tax of 30% on all distributions from discretionary trusts to adult beneficiaries.  The aim of this policy is to reduce the use of income splitting to minimise tax.  The policy is not expected to apply to non-discretionary trusts such as disability trusts, deceased estates, fixed trusts, farm trusts or charitable trusts.

 

Dividend Imputation Credits

 

Coalition:

No change to the current arrangements regarding imputation or the refund of excess imputation credits (which can be converted into cash refunds).

 

Labor:

Closing down the concessions that allows for full refunds for excess dividend imputation credits from 1 July 2019. Under Pensioner Guarantee arrangements, pensioners will be protected from these changes and will still be able to benefit from cash refunds.

Individuals and superannuation funds will still be able to apply franking credits to reduce their tax liability but will not be entitled to receive a cash refund.

 

Further Labor policies announced so far:

 

Capping deductions for managing personal tax affairs

Labor supports a $3,000 cap on the amount individuals can deduct for the management of their tax affairs.  The cap may also affect trusts and partnerships.

New residential dwellings subsidy for landlords

Labor has proposed a provision for landlords who build new residential properties with an annual subsidy for 15 years of $8,500 per year if the dwelling is rented out at 20% below the market rate.

 

Superannuation

• “When prudent”, an increase in the Superannuation Guarantee (SG) rate to 12% ahead of the current legislated timetable
• A reduction to con-concessional (after tax) contributions from $100,000 a year to $75,000
• Scrapping catch-up contributions which currently allow for up to five years’ concessional payments to be contributed in one year
• Reducing the threshold for the contributions tax surcharge for high-income earners from $250,000 to $200,000
• A phasing out of the $450 minimum monthly threshold to receive SG contributions to bring low-income, part-time workers into the superannuation system
• Labor plans to extend super contributions to parental-leave payments which is expected to increase retirement balances for women

 

Need further advice:

 

While the Labor policies mentioned above are dependent on them winning the next election, as well as the passage of legislation through Parliament, it is worthwhile considering how the proposed changes might impact your personal circumstances.

If you are concerned about how any of these policies might affect you, feel free to contact us for further advice. You can reach us on (07) 3023 4800 or at mail@marshpartners.com.au

Share this article on LinkedIn: