Upcoming Federal Election – Potential big changes ahead

Tax will be one of the big ticket items of this year’s Federal Election. With this in mind, many clients are questioning the potential impact of tax changes on their personal and business affairs.

At present, the Coalition’s tax policy remains largely unchanged from previous announcements, although we do expect further tax announcements in the Federal Budget on 2 April 2019. We anticipate there will be changes to some previously announced policies, particularly where the Coalition has struggled to pass Bills through parliament (for example, R&D tax incentive changes and the removal of the main residence exemption for foreign residents). The ability of the Coalition to enact tax policy in future will depend on the balance of power post-election. 

Alternatively, if there is indeed a change of Government, we are in for a period of significant tax reform.  A large percentage of taxpayers will be impacted by Labor’s proposed removal of negative gearing, denial of imputation credit refunds and the introduction of a minimum 30% tax rate for beneficiaries of discretionary trust distributions. 

There is however difficulty in advance planning, as whilst the Labor Party has released overarching policy statements, they are yet to provide sufficient detail. As with all significant changes in tax, the devil will be in the detail.

For now, it’s a waiting game. In the meantime, we provide a brief summary of the different tax policy positions of both major parties. 

2019 Federal Election
Comparison of Coalition and Labor Party policies

(current as at 28 February 2019)

 
Policies affecting individuals, superannuation funds and trusts

Topic Coalition policy Labor policy
Refunds of imputation credits No change Removal of refunds of imputation credits for both individuals and superannuation funds.
 
Pensioners will still be entitled to refundable imputation credits provided they were a pensioner before 28 March 2018. SMSFs will still be able to claim a cash refund as long as the SMSF had at least one pensioner or allowance recipient before 28 March 2018.
 
Charities and not-for-profits are exempt from the proposed changes.
Tax cuts for individuals Coalition announced changes in the 2018-19 Federal Budget, including introduction of an offset for low and middle income earners, changing tax brackets to prevent bracket creep and removal of the 37% tax bracket. Changes to be implemented  from the 2019 income year through to the 2025 income year.
 
Tax cuts for low to middle income earners.

Tax cuts larger than Coalition for taxpayers with a taxable income up to $125,000.
 
Labor reintroducing the 2% debt levy for taxable incomes above $180,000 resulting in a top marginal rate of 49%.
Negative gearing No change Negative gearing will only be available for new housing (date to be determined). Anything prior to this date will likely be grandfathered.

Negative gearing losses (other than new housing) will be quarantined to be carried forward and offset against future income from the asset and any eventual capital gain.

Positively geared investments can be offset against negatively geared investments.
Reduction in the CGT discount No change
 
Reduction of the CGT discount for individuals and trusts from 50% to 25.
There will be no change to the current 33% discount for superannuation funds.

Assets already owned will be grandfathered.
Mandatory 30% tax rate on trust distributions No change Introduction of a minimum 30% tax rate for beneficiaries of discretionary trusts to reduce income splitting.
 
The proposed changes apply only to discretionary trusts.
Deductions for managing tax affairs No Change $3,000 cap on deductions for individuals for managing tax affairs.
Loss of main residency exemption for foreign residents Removal of the main residence exemption for non-residents.
Originally introduced in March 2018, the bill is currently before the Senate.

 
In favour of taxing main residences of foreign residents but believe a market value uplift in cost base should be available when the owner ceases being an Australian resident. Alternatively, the gain should be apportioned based on the number of days the property was the taxpayer’s main residence.
Division 293 threshold No Change Reduction of the Division 293 threshold from $250,000 to $200,000.
Annual non-concessional contributions No Change Reduction of the annual non-concessional contribution limit from $100,000 to $75,000.
Catch-up concessional contributions No Change Removal of both catch-up concessional contributions and deductibility of contributions made by employed individuals.
Superannuation funds ability to enter into LRBAs   Restriction on entering into any new LRBAs for SMSFs.

2019 Federal Election
Comparison of Coalition and Labor Party policies

(current as at 28 February 2019)

 
Policies affecting business

Topic Coalition policy Labor policy
Company tax cuts Proceeding with company tax rate being lowered to 25%. Current threshold is for companies with maximum of $50 million turnover. Agrees with Coalition's tax cut to 25% for companies with turnover of less than $50 million, with a reducing tax rate down to 25% in the 2021-22 year.
Tackling tax havens No change.
Has enacted Diverted Profits Tax, MAAL and CbC reporting measures.
  • Public reporting of CbC reporting for companies with greater than $1 billion of turnover.
  • Costs that a company incurs on behalf of an individual which is business related will not be deductible if the individual is going to a tax haven. If a deduction is denied, FBT will apply.
  • Austrac data to be published.
  • Government tenderers required to disclose country of tax domicile.
  • Mandatory reporting to shareholders if company is doing business in a tax haven.
Changes to superannuation guarantee charge Increase in SGC to 12% by the 2026 income year.
 
  • Increase in SCG to 12% sooner than current date (timeline not provided).
  • Removal of $450 threshold before contributions are required.
Thin capitalisation   Removal of safe harbour and arm’s length debt tests, resulting in the worldwide gearing ratio being the only available method.
R&D Proposed amendments announced in 2018-19 Federal Budget limiting refunds to $4 million and introducing a capital intensity threshold are subject to further analysis. Supports R&D with an aim of R&D expenditure being 3% of GDP.