Australia is renowned in the world for its beautiful weather, stable political environment and transparent fiscal policy.
Up against this reputation, Australia just had its hottest summer on record (source: Bureau of Meteorology), seven prime ministers in just 10 years and with the upcoming Federal election in a few month’s time heavily fought on tax grounds.
While both political parties are constantly making new announcements to their tax policies as it gets closer to the election date, it is probably a good time to pause and let Alan Leung take us through some of the heavily debated tax proposals announced by the political parties:
|Labor’s proposal||Coalition’s proposal|
|Limiting the benefit of negative gearing to investments made before 1 July 2017. For real estates and other passive investments made on or after 1 July 2017, taxpayers would not be able to offset overall investment losses against other sources of income eg business, employment.||No such policy.|
|Halving the capital gains tax discount on disposal of new assets from 50% to 25%. Currently, a 50% capital gain discount applies on disposal of an asset purchased after September 1985 that is held for more than 12 months. Under Labor’s proposal, the discount will reduce to 25%.||No such policy.|
|Raising the top marginal tax rate for individuals from 45% to 47%. When adding the 2% Medicare Levy, the effective top marginal tax rate would be 49% for individuals earning more than $180,000.||No such policy.|
|Eliminating cash refunds for excess franking credits to certain individuals and super fund taxpayers (franked dividends have a franking credits attached to them which represent the amount of tax the company has already paid). Currently, if an individual or super fund’s tax payable is less than the franking credit received, the excess is refundable in cash. This proposal would largely self-funded retirees and self managed super funds in their ability to receive cash refunds.||No such policy.|
|Limiting deduction for the cost of managing tax affairs for individuals, SMSF, trusts and partnerships to $3,000 per entity per year (with the exception for small businesses)||No such policy.|
|Taxing discretionary trust distributions made to individual beneficiaries from 1 July 2019 at a minimum tax rate of 30%.||No such policy.|
|Providing businesses immediate deduction to 20% of the value of any eligible new assets worth more than $20,000, with the balance depreciated over the remaining effective life of the asset. Most notably, eligible assets exclude passenger motor vehicles.||Currently small businesses are able to claim an immediate deduction of the cost of most plant and equipment individually costing up to $25,000. The $25,000 limit reverts back to $1,000 after 30 June 2020.|
|Stopping the current freeze of super guarantee rate from 9.5% and fast tracking the increase to 12%.||The current 9.5% superannuation guarantee rate is schedule to rise to 10% from the 2021/22 income year and gradually to 12% by 2025/26 tax year.|
|Further reducing the limit for making non-concessional contribution to super funds from $100,000 to $70,000.||Retain the non-concessional cap to $100,000 per year.|
|Further lowering the Income threshold for the extra 15% contribution tax for high income earners from the current $250,000 to $200,000.||The 15% additional contribution tax limit was reduced from $300,000 to $250,000 from 1 July 2017 by the current Government. It is expected more than 130,000 taxpayers already have to pay more tax on their concessional superannuation contribution as a result of the previous measure.|
|Abolishing the rule allowing taxpayers to catch up concessional contribution of up to 5 years if they have less than $500,000 in their super funds.||No such policy.|
Once must note that there is very little detail on how these proposals are to be implemented, and like many things in life, the devil is in the detail.
Having said that, we expect these proposals, if implemented, will result in significant amount of additional tax payable by medium to high income earners eg GPs, Specialists, including those who structure their financial affairs using trusts, companies, and SMSF.
Not to forget the commercial side of these proposals as well. For example, the announcement on negative gearing while may affect the value of properties in general, could also impact on the taxpayers’ ability to obtain finance in order to acquire the investment.
We suggest speaking to your accountants and tax advisers on how these proposals may affect your tax planning so you could take appropriate action.
About Alan Leung: A Registered Tax Agent, Alan has over 25 years experience in providing complex tax advice to corporate and high net worth taxpayers in Australian and overseas. Alan is a Fellow of Chartered Accountants Australia and New Zealand (CA ANZ) and a Fellow and Chartered Tax Adviser with The Tax Institute. Having a Master of Taxation from the Melbourne Law School, Alan also holds the position of Tax Trainer with CA ANZ and regularly presents at tax training sessions to a number of professional services firms. Alan may be contacted at email@example.com
Disclaimer: The comments above have been prepared for informational and general purposes only and are not intended to provide, and should not be relied upon for tax, legal or financial, or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction or making a claim on a tax return.
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