Federal Opposition Australian Labor Party (ALP) tax policies
Posted by Northadvisory on May 2, 2019
The Australian Labor Party (ALP) has announced an intention in government to change franking credits from a refundable to a non-refundable tax credit from 1 July 2019.
A “Pensioner Guarantee” would be included in the franking credit change for individuals in receipt of an Australian Government pension or allowance. Also, self-managed superannuation funds with at least one pensioner or allowance recipient before 28 March 2018 will also be exempt from the changes (ALP website).
Under an ALP government, negative gearing will only be allowed on newly constructed residential properties after 1 January 2020 (ALP website).
All prior investments would be grandfathered, meaning that income losses on an asset class are able to be offset against other assessable income.
It has been suggested that any negative income amounts would be allowed to be carried forward and offset against a future capital gain on the asset (Ref: MinterEllison, p 5).
However, investors with many rental properties may be able to “stagger” the gearing levels across currently held assets in the same class. Specifics relating to how the new policy would work with regards to split loans, redraw or credit facilities are to be determined.
From 1 January 2020, the ALP has proposed to halve the capital gains tax discount from 50% to 25%. This change in the discount rate will apply for all assets purchased after 1 January 2020 that are held for longer than 12 months (ALP website).
The media release goes on to say that all purchases made prior to 1 January 2020 will be fully grandfathered. There has been no announcement regarding any consequences this development may have on employee share scheme acquisitions.
Limit on deductions for managing tax affairs
The proposal in its current form is a $3,000 limit per taxpayer per year for managing tax affairs. This may include preparing and lodging tax returns and activity statements, and obtaining tax advice from a recognised tax adviser.
Other areas which have been seen as controversial in the media relate to tax agent charges in large “one-off” events, such as divorce, inheritance or retirement (Ref: CPA In the Black). Also, there has been no further guidance on whether the deductibility of general interest charge on a tax debt will also be limited to $3,000 per year.
Discretionary trust distributions tax
A prior announcement made by the ALP in opposition intends to introduce a 30% standard minimum rate of tax to adult beneficiaries for discretionary trusts. There intends to be no change to the trust taxing rules for non-discretionary trusts, such as testamentary trusts or fixed unit trusts (ALP website).
Extension of budget repair levy
Following the 2019 Federal Budget, the ALP confirmed that, in government, they will bring back the temporary budget repair levy of 2%. ALP shadow treasurer stated the levy would remain in place until the budget surplus was 1% of gross domestic product, anticipated to be 2023 (AFR story, 3 April).
The 2% levy would apply to individuals who are above $180,000 in taxable income.
Australian Investment Guarantee
The ALP leader confirmed in the 2019 budget reply speech a commitment to the Australian Investment Guarantee (AIG). The AIG will be an immediate write-off of 20% for any new eligible asset costing more than $20,000.
Further information on eligible assets would be made available later, but are intended to include machinery, plant and equipment, including upgrades. It is announced that investments in buildings (capital works) would be excluded, as well as motor vehicles.
The federal opposition has committed to changing certain rules relating to superannuation contributions (ALP website). These include:
- providing superannuation guarantee payments of 9.5% for paid parental leave, and
- phasing out the $450 per month minimum income threshold for superannuation guarantee.
Catch-up concessional contributions
Labor has announced their intention to repeal the catch-up concessional contributions, introduced in the 2016/17 income year (2018 ALP National Platform, p 15).
Under the enacted legislation, individuals with a total superannuation balance of less than $500,000 are able to make additional concessional contributions. Eligibility to make additional contributions apply where an individual has not reached their concessional contributions cap in previous years, with effect from 1 July 2018. Unused amounts will be carried forward on a rolling basis for a period of five consecutive years from 1 July 2018.
- Maintaining the company tax rate of 25% for businesses with aggregated turnover under $50m, scheduled to commence in the 2021/22 income year.
- Managed investment trust tax rate to be reduced from 30% to 15% in a “Build to rent” scheme, commencing 1 January 2020.
- Removal of thin capitalisation calculations for debt deductions, leaving international entities with only the worldwide gearing ratio test to apply.
- Reducing non-concessional contributions cap from $100,000 to $75,000.
- Reducing threshold for Div 293 tax from $250,000 to $200,000.
- Banning new limited recourse borrowing arrangements in self-managed superannuation funds.
- Reintroducing recently repealed legislation surrounding deductibility for salary and wage earners to make additional deductible superannuation contributions. In the past, only self-employed individuals could make personal deductible superannuation contributions.
If you have any questions or concerns about how the Australian Labor Party tax policies may impact on you, please do not hesitate to contact us.
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