Don't wait for May Budget for tax policy changes

by Tony Bates
Director | Bates Cosgrave Wealth Management ASFL 

Amidst all the political rhetoric of the past few months, at least one date has been settled: the Federal Budget will land on Tuesday 3 May. 

Despite several false starts on policy and rumblings from the back bench, it would seem that any serious tax reforms have been watered down with no increase in GST, limited changes to negative gearing and no taxes on superannuation pensions. 

What is likely to appear before Budget Night? 

As Budget Night gets closer, there seem to be few big surprises on the horizon. With ill-conceived thought bubbles and the odd flub via leaks to the media, the Government is looking less likely to upset the political apple cart by offering up too many negative surprises ahead of the anticipated election announcement. 

The much-vaunted Tax White Paper promised by former Prime Minister Tony Abbot has all but evaporated and try as he might to distance himself from his predecessor, Malcolm Turnbull's failed initiative to allow the states to raise their own income from state-based taxes to pay for health care and education was met with a resounding "no". 

That said, I do think that there will be tax policy announcements ahead of the May Budget. So what are we likely to see? 

Superannuation: A rich target

Treasurer Scott Morrison has flagged changes to superannuation that will bring us closer to a 'landing place', such as redefining the purpose of superannuation: moving away from the old sole purpose test that "… the principle purpose of superannuation is to provide an income in retirement…" to a definition that integrates it more with the aged pension. 

Superannuation is a fertile area for change because taxing large superannuation balances appears more politically acceptable than other tax changes such as negative gearing, marginal tax rates, GST and CGT.

The Government have pretty much ruled out introducing taxes on superannuation pensions, but there could be changes to taxes on pension accounts within super, currently taxed at 0% on income and capital gains. Several weeks ago, Mr Turnbull was quick to distinguish between the possibilities of changes to CGT on individuals vs. other entities. 

The treatment of franking credits could change, such as removing the refund of credits if the taxpayer has a lower tax rate than the company tax rate. There may also be changes to pension rules. One that is often the subject of speculation is the current generous transition to retirement rules.

More likely are changes to contribution rules.  The current 15% flat tax on contributions could go, replaced with normal marginal rates less a rebate. Changes to contributions caps are also possible, including perhaps a lifetime cap on contributions of, say, $2m.  The three-year bring forward rule allowing individuals to bring forward $540,000 in non-concessional contributions could also go. 

The SMSF Association has also called for more flexibility on contribution caps over financial years rather than the current 'use it or lose it' method. 

Many of these changes have a 'back to the future' flavour, contribution rebates, reasonable benefits limits, and normalisation of franking credits.

What else is likely to be on the cards?

The (Ken Henry) Tax Review, the (David Murray) Financial System Inquiry and the (Tony Shepherd) Commission of Audit have each provided the Turnbull Government with ample ground for hundreds of possible changes.  

Tweaks to CGT, company tax rates (watch this space), marginal tax rates, franking credits, and negative gearing are all possible. However, with the Government starting to falter in the polls and preparing to move into re-election mode, it appears that for the most part it has shied away from major directional change within the current term of Parliament, particularly following the back-hander from the States on income tax. 

What you can do before Budget Night

So where does this leave investors and individuals in making changes for their wealth planning? 

I'd suggest you consider your options now rather than wait until the Budget has been announced.  Here are next steps that may provide food for thought:  
  1. If you have an opportunity to use the bring forward rule on non-concessional contributions consider arranging it now
  2. If you are over 55, consider commencing a transition to retirement income stream
  3. If you are over 60, consider commencing a pension in April if you have not already done so

Under the current rules, each of these strategies is reversible and therefore provides 'good insurance' for you.  

Get advice before you act

To discuss the options most suitable for your circumstances please contact Bates Cosgrave on 02 9957 4033 or email to request an appointment.

Follow Bates Cosgrave on Linkedin or Twitter

The information (including taxation) contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Bates Cosgrave Wealth Management 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. Licensed under AFSL 500640

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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