What Does a Labor Government Mean for Your Tax?
INCOME TAX FACTSHEET
The Australian Labor Party has been slowly releasing – or confirming – its tax policy reforms since mid 2018. We wrap up what they are proposing and what it could mean for you.
The Australian Federal Election is just a few weeks away and current polling points towards a potential Labor Government being elected. As the election campaigns get underway, Labor has been confirming key components of its taxation reforms.
So what it could mean for you? Keep reading for a summary of what we know.
Raising the marginal tax rate.
If you earn over $180,000, then you should be aware that the proposals include lifting the top marginal tax rate from 45% to 47%. With the addition of the Medicare levy, it's an effective top rate of 49%.
A Labor win would have potentially significant impacts on self-funded retirees who rely on franking credit refunds as part of their income. Labor plans to stop refunds of franking credits to individuals and superannuation funds. This would not apply to charities, not-for-profit organisations, or people in receipt of an Aged Pension.
For a detailed analysis of how this could impact you, please see our recent factsheet, What Will Labor's Proposed Franking Policy Mean for You?
Labor announced its plans to introduce restrictions on negative gearing for investors, aiming to save more than $32 billion over a decade. While property has attracted the most attention in Labor's policy, the changes to negative gearing would, in fact, apply across the board to all investments. Investors will not be allowed to use net investment losses.
Labor has laid out a plan to phase out negative gearing on property as well as reduce the capital gains discount to 25%, with the family home not subject to capital gains tax. Additionally, Labor has also said that the changes won't be retrospective, but will be grandfathered and applicable to assets purchased after a date that has yet to be announced. New property development would be excluded from this policy change.
For a more detailed analysis, see our recent factsheet: Election 2019: Negative gearing restrictions under a possible Labor government.
Capital Gains Tax
As mentioned above, the capital gains discount would be reduced to 25% (excluding superannuation funds).
Minimum Tax Rate for Discretionary trusts
Labor intends to apply a minimum 30% tax rate for discretionary trusts to beneficiaries over the age of 18, which is likely to apply from 1 July 2019.
Some exemptions may apply, such as people with disability, with the Commissioner likely to be given discretionary powers to ensure people suffering genuine hardship are not affected. Special disability trusts, deceased estates and testamentary trusts, fixed trusts, farm trusts, and charitable trusts are likely to be exempt.
Cap on Deductions for Managing Tax
Labor proposes to limit the deduction of costs for managing tax affairs to $3,000 for individuals, SMSFs, trusts, and partnership. It is not clear as yet whether this will also include small business.
Instant Asset Write-off
Organisations who've enjoyed the instant asset write-off would have a 20% instant asset write-off for capital expenditure not exceeding $20,000 for entities that have an annual turnover of less than $10m.
Travel to Known Tax Havens No Longer Deductible
Labor proposes to deny tax deductions for travel to known tax havens, irrespective of whether the travel is for legitimate commercial reasons. Labor also proposes companies must disclose to shareholders that they are doing business in a tax haven as a 'material tax risk'.
What Do These Proposals Mean for You?
Assuming a change of government does occur, there may be implications for your tax management and planning that will need to be reviewed with your accountant or tax adviser.
If any of these proposals are likely to impact you or your family, please contact us on 02 9957 4033 or send an email to the team.
Last updated April 2019 This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.