How do the federal election tax policies impact you?

Your guide to the federal election tax policies

With the federal election now set for the 18th May 2019, we thought it would be timely that we inform you of the some of the policies announced by the Liberal and Labor parties.

This is in no way an exhaustive in-depth analysis. It is meant to make you aware of the policies of the two major parties, and particular the significant changes proposed by the Labor Party.

The Liberal Party has made a string of announcements this year in the lead up to and including the Budget. The announcements mainly relate to easing tax on low-middle income earners and making life easier for small business. One of the Liberal Party announcements has already become law – the increase in the instant asset write off from budget night to $30,000 for those business with a turnover of less than $50,000.

The Australian Labor Party has an ambitious tax and superannuation reform agenda which it has published in stages over recent years.

ALP modelling suggests that most of the revenue raising measures impacting individuals will affect mainly high income earners, a claim which the Coalition contests in policy areas such as negative gearing and franking credit refunds.

Business tax reforms are largely designed to increase tax transparency and reduce gearing deductions claimed by multinationals against the Australian tax base. Labor's proposed Australian Investment Guarantee has been well-received by the business community because it caters for large capex outlays (as distinct from the current $30,000 threshold for the instant asset write-off for businesses turnover less than $50 million).

Individuals and families

Superannuation

Business


Individuals and families

Denying cash refund of franking credits

The ALP says that from 1 July 2019 it will no longer allow cash refunds for excess franking credits. This reverses a Howard government policy that has existed since 1 July 2000.

Under Labor’s plan, franking credits will become a non-refundable tax offset for both individuals and super funds. Pensioner and allowance recipients will be protected from this measure.

This will particularly impact on those with SMSFs, which account for 90 per cent of all franking credit refunds paid to superannuation funds.

Limiting negative gearing

Labor stated in its 'Positive plan to help housing affordability' that it plans to abolish negative gearing from all investments except new housing.

The proposed changes to negative gearing won’t just apply to property but also to shares and other investments.

Any losses from new investments will be quarantined so that they can be offset only against investment income and not salary and wage income. However, investors will be able to carry forward any losses to offset their final capital gain when they sell their investment.

Labor has announced a commencement date of 1st January 2020, but says investments made before the laws are introduced will not be affected and will be fully grandfathered.

Halving the CGT discount

Labor also proposes to reduce the CGT discount for individuals on all assets purchased. This will take the discount - which applies to assets held longer than 12 months - from 50 per cent to 25 per cent.

The change won’t affect investments held by super funds which will continue to attract a one-third CGT discount (i.e. a tax rate of 10 per cent on capital gains) for assets held longer than 12 months.

Grandfathering provisions are likely to be applied so that any investments made before the laws come into effect will still attract the full 50 per cent discount.

Raising the top marginal tax rate by 2%

In June 2018, the Liberal government secured a personal tax cuts package worth $13.4 billion. The first stage was delivered on 1 July 2018. The next two are planned for 1 July 2022 and 1 July 2024. If enacted, these will flatten the tax scale, abolish the 37 per cent tax bracket and raise the threshold for the 45 per cent marginal tax rate from $180,001 to $200,001.

The Liberals have announced it will provide additional tax relief by more than doubling the low and middle tax offset of up to $1,080, which will be able to be accessed on lodgement of taxpayers 30th June 2019 tax returns from 1st July 2019.

Labor supports the 2019-20 Budget announced increase to the Low and Middle Income Tax Offset from $530 to $1,080 but will increase the base amount of LMITO to $350.

Labor supported the first stage of this package, which mainly impacted low- and middle-income earners. However, it says it will unwind Stages 2 and 3 which it argues will disproportionately benefit those earning higher incomes.

Labor proposes from 1st July 2019 to lift the top marginal rate for taxpayers with taxable incomes in excess of $180,000 from 45% to 47% for an unspecified time.

Despite the hype, the personal tax system will look similar for the next three years regardless of which party wins office. The big difference lies in the distant future, beyond 2024-25.

Taxing discretionary trusts

Labor says it will stop discretionary trusts (i.e. family trusts) being used to minimise an individual’s income tax.

Discretionary trusts allow trustees to allocate income to a family member on a lower marginal tax rate.

From 1 July 2019, Labor will introduce a new standard minimum tax rate of 30 per cent on discretionary trust distributions to adult beneficiaries.

Cap on deduction for management of tax affairs

Labor has announced it will cap the amount individuals can deduct for the management of their tax affairs at $3,000.


Superannuation

Changing superannuation thresholds

In April 2018, Labor Labor set out its proposed superannuation policies in the ALP National Platform Consultation Draft.

We’ve set out the more important changes below.

  • Non-concessional cap to be reduced to $75,000 from current cap of $100,000.
  • Income threshold for the extra 15% contributions tax on high income earners to be lowered to $200,000 p.a., currently $250,000.
  • Abolish current catch-up concessional contributions.
  • Deductibility of personal contributions for employed persons to be removed.
  • Committed to low income superannuation tax offset.
  • Borrowing by SMSF’s to be prohibited.
  • Superannuation Guarantee coverage to be expanded to include both parental leave and salary and wages of less than $450 per month.
  • Increase in the Superannuation Guarantee rate to 12% ahead of the current timetable “when prudent”.
  • Develop guidelines for tax haven investment by superannuation funds.

The Liberal Party have accouned the following measures:

  • Australians aged 65 and 66 will be able to make voluntary superannuation contributions, both concessional and non-concessional, without having to meet the work test.
  • Increase the age limit for spouse contributions from 69 to 74 years.
  • Extend access to the bring forward arrangements to those aged 65 and 66 years.

Business

Small business corporate tax cuts to remains

In June 2018, Bill Shorten announced that Labor would not repeal already legislated corporate tax cuts. This means businesses turning over less than $50 million a year will retain the tax cuts which passed through Parliament in October 2018.

These will eventually see the rate of corporate tax for small business fall to 25% by 2021-2022.

Instant asset write-offs and the Australian Investment Guarantee

Liberals announced in the 2019 budget and which has subsequently become law, small businesses with a turnover less than $50 million can immediately write off the business portion of any asset they purchase up to the value of $30,000, extended through to 30th June 2020.

Labor says it will back the extension but it has also released a proposed Australian Investment Guarantee (AIG) which will allow all businesses, regardless of their size from 1 July 2020, to:

  • ‘immediately expense’ 20 per cent of the value of eligible depreciable assets that cost 'more than $20,000' in the first year after they’re purchased; and
  • depreciate the balance in line with normal depreciation schedules from the first year, but excluding passenger motor vehicles, and investment in structures and buildings.

In Conclusion...

Australia has a reputation for being one of the most complex tax systems in the world. Part of the reason for this is that the tax system is always changing, and change tends to add to complexity.

If the ALP is elected, their tax reforms will be considerable and will have a wide-ranging impact. If elected, they also need to get their legislation though the Senate, which if this last term of government tells us anything, will be no easy task. Invariably the devil will be in the detail as these policies are developed and negotiated with the cross bench.

There are some strategies that may be prudent to implement prior to 30th June 2019, particularly if you can take advantage of franking credit refunds. Also, the proposed superannuation changes could impact your ability to claim deductions or effect the amount of contributions you can make into the future.

We are available to discuss these matters with you and how they may impact your personal circumstances. Please make an appointment with one of our accountants before the 30th June 2019 to plan ahead, regardless of which party gets in!

If you need any addiotnal infomation reagarding the 2019 federal election policies and how these may effect you - please click from the below options to get in contact with our team.

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