The outcome of this weekend’s Federal election could have serious implications for your business and personal financial future, specifically:
- The amount of personal income tax and Medicare levy you will pay;
- The amount of capital gain that will affect your personal tax;
- Your ability to convert excess franking credits into cash refunds;
- How trust distributions will be taxed;
- Your ability to offset investment losses against other income (negative gearing);
- Your ability to claim a full deduction for the cost of managing your tax affairs; and
- Further changes to superannuation rules.
It’s important to note that in some cases there is little detail associated with the proposed changes, and the final legislation may differ substantially.
Here we outline the known key ALP and Coalition policies relating to tax and superannuation, and what they may mean for you. While the outcome from the Federal election is yet to be decided, our role is to provide advice specific to your circumstances, and we are here to help.
LABOR’S TAX POLICIES
1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.
2. Doing away with the cash refunds for excess franking credits through a SMSF.
3. Increasing the personal tax rate in the top tax bracket by an additional 2%.
4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.
5. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).
6. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted.
If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains.
It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses.
7. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;
8. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.
9. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.
10. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.
11. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.
a. Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
b. Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
c. Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
d. Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
e. Higher penalties for employers not paying SG.
THE COALITION’S TAX POLICIES
1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
• 27.5 per cent 2019-20 income year
• 26 per cent for the 2020-21 income year
• 25 per cent for the 2021-22 income year and for subsequent income years
The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;
2. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;
3. No change to current arrangements regarding negative gearing of investment property;
4. No change to the CGT discount, which currently sits at 50 per cent for individuals;
5. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;
6. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;
7. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;
8. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and
9. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.
If you have concerns about proposed policies and how they may affect your personal or business goals, we encourage you to make an appointment. Contact us today on 03 9708 8801 or email firstname.lastname@example.org
General Advice Disclaimer: The information contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Robinson Voss Partners (RV Partners) strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.