A summary of Labor's Proposals
In the run up to the Federal Election, the Labor Party has already flagged that it proposes making a number of changes to the tax system, the main ones of which are noted below.
Labor have announced that they would introduce a standard minimum 30% tax rate for discretionary trust distributions to beneficiaries over the age of 18. The concept of this policy to reduce the incidence of "income splitting" to minimise tax. The concept to taxing trusts akin to companies is not a new one and would likely have some way to run before it became law due to technical matters that would require resolution.
Bill Shorten has vowed to increase the minimum wage and increase Sunday penalty rates in some industries. The proposed changes are designed to increase the minimum wage to a “living wage” to ensure that “no person working full-time in Australia need be in poverty”.
Shadow Treasurer Chris Bowen has announced that Labor’s proposed changes to the Capital Gains Tax (CGT) discount would apply from 1 January 2020. Labor have announced that they intend to half the CGT discount reducing it to 25% for assets acquired on or after 1 January 2020. In addition, Mr Bowen reaffirmed Labor’s stated position that any assets acquired before that date retain access to the 50% discount.
Labor’s proposed changes to the rules around negative gearing are also flagged to apply from 1 January 2020. Labor have announced that they intend to restrict losses from rental properties being able to be offset against other income from 1 January 2020 to the extent that the losses are not attributable to “new” properties. Mr Bowen reaffirmed Labor’s stated position that any assets acquired before that date retain access to the historical negative gearing concessions.
Labor are proposing to amend the law to prevent imputation credits (often referred to as franking credits) being able to generate a tax refund. Labor have stated that imputation credits will be retained to offset tax liabilities but unlike the current treatment the excess will be retained by the government.
Labor anticipate that this change will not impact a large number of people, however, those with self-managed superannuation funds or those will an investment portfolio outside of the superannuation scheme and no other income will likely see the effective rate of return drop on the underlying investments.
The policy is scheduled to apply from 1 July 2019 and is subject to exceptions where the taxpayer is a recipient of the Age Pension (or similar type of government payments) or self-managed superannuation funds with at least one member receiving such benefits as at 28 March 2018.
Budget Repair Levy
In May 2018, the Shadow Treasurer confirmed that if elected, Labor seek to restore the “temporary” budget repair levy, a 2-percentage point increase to the top marginal tax rate until the budget was in a strong surplus position. Previously the levy, introduced by the Coalition had a definitive time span, however, the proposal by Labor has no such end date.
Should you require further information to the above or have any questions about how this may impact your business, please do not hesitate to contact your engagement partner on 02 9283 1666.
Article by David Prichard