With a federal election only months away and a change of government looking almost certain, we provide for you some of the proposed tax changes from the Labor Party.
- Removal of imputation credit refunds from 1 July 2019
Imputation credits will no longer be refundable for individuals and superannuation funds. Taxpayers will not be able to obtain cash refunds for excess imputation credits but can use them to reduce tax payable. Note carve-out for those receiving government pensions;
- Budget deficit repair levy – 2 % additional tax
For taxpayers with taxable income in excess of $180,000 the Labor Party will reinstate the Budget deficit repair levy of 2%, bringing the highest marginal tax rate to 49%.
- Trust distributions taxed at 30%
A minimum tax rate of 30% would be applied to discretionary trust distributions to adult beneficiaries commencing 1 July 2019.
- Negative Gearing changes
All current assets and new housing will be grandfathered from the new negative gearing changes. For all other assets, negative gearing losses will be limited to being deductible against other investment income or capital gains.
- CGT Discount reduced to 25%
This measure will apply to individuals (not superannuation funds or small business assets). All existing assets held would be grandfathered from these changes.
- Australian Investment Guarantee
This measure is a form of accelerated depreciation allowing businesses an immediate expense of 20% of the value of eligible depreciating assets in the first year with the balance depreciated in line with normal depreciation rules in the first year. Eligible assets include tangible machinery, plant and equipment and non-passenger vehicles (lifters, lorries, trucks). Ineligible assets such as new investments in computerised technology and intellectual property. Note that the $20,000 instant asset write-off for small business would not continue to be supported.
- Corporate tax rate cuts for business with less than $2 million turnover
Companies with turnover greater than $2 million will not be eligible for the reduced company tax rate.
The proposed changes are designed to increase tax collections. The specific targets include:
- High income individuals earning greater than $180,000 taxable income will pay 2% additional income tax
- Trust Distributions – Distributions of trust income both investment and business income will be taxed at 30%, meaning distribution to low income beneficiaries will be taxed at higher rates. Planning point: Where the trust can employ people, wages are taxed at marginal rates as opposed to the 30% trust distributions.
- Gearing, franking credits and CGT discount benefits reduced – Investors will need to focus more than ever on the return of the assets they invest in as the tax benefits attributed to investments continue to be reduced. Traditional approaches of using trust structures for investment assets and businesses should also be re-assessed.