With only two more sleeps until the 2019 Federal election, Australians have a plethora of promises to consider. We’ve found a very helpful comparison of the two major parties’ tax policies, released by The Tax Institute.
To a large extent, the parties have sought to differentiate themselves through their tax policies. Their proposals present two different versions of Australia. In the Coalition’s 2019 Budget, we were presented with a long-term plan for “lower, simpler, fairer taxes”. Labor have presented their response as a plan for a “fair go”.
Our views below are simply related to the parties’ tax policies in isolation, and how these might affect our clients. Of course, you will need a broader perspective to assess the overall merits of each party.
When comparing policies we suggest you only look at one political term. Who knows what will happen beyond 4 years?
In the short term, both parties support the instant asset write off and a lowering of the company tax rate for small business to 25%. These are both good policies in our view.
The key differences are in Labor’s capital gains tax (CGT) changes and their proposal to tax Trust’s in the same way as Companies.
Labor’s proposed reduction in the CGT discount from 50% to 25% on passive assets is significant. It effectively doubles the amount of tax payable on investment capital gains.
Taxing Trust’s as Companies is also a significant change. If this measure came into effect it would require many clients to review their current structures.
We expect these proposals from Labor would only further complicate tax planning, rather than simplify tax affairs as has been suggested.
You might also be interested in
- $100 million Australian Business Growth Fund. The fund aims to improve small and family business’ ability to access funding, while retaining the majority shareholding, in order to grow and create jobs.
- An additional $43.4 million for the agriculture, fisheries and forestry sector, including a new forestry hub in northern and north-west Tasmania.
- $50 million to establish a Manufacturing Modernisation Fund.
- $60 million for Export Market Development Grants.
- $100 billion dollar infrastructure spending (over 10 years), including $313 million (also over 10 years) for land transport infrastructure in Tasmania.
- The Australian Investment Guarantee which would allow businesses to immediately deduct 20 percent of an eligible business investment over $20,000. Proposed to commence 1 July 2021, AIG would be a permanent feature of the business tax system.
- $1 billion package for Tafe, vocational education and subsidised apprentiships in areas with skills shortages.
- Reversal of penalty rate cuts, which Bill Shorten has said is his first priority if elected.
- Up to $500 million for the construction of the second Bass Straight interconnector
- $44 million Tasmania Tourism Infrastructure Fund
Changes impacting individuals
If we again focus on the short term, the parties’ tax rate proposals for individuals are not that different. An increase to the highest rate (from 45% to 47%) under Labor would be immediate, otherwise it is 2023 before any real differences start to emerge.
However, long term, Liberal propose to flatten the marginal tax rates. This would result in all taxpayers who earn up to $200,000 paying a maximum of 30%. Unfortunately, Labor do not support this position and are offering no real relief from bracket creep. We have previously written about bracket creep and would be happy to see previous measures built upon to better address the issue.
Labor’s proposal to cease refunds of franking credits has rightly been one of the most controversial policy announcements. We are strongly opposed to this policy on a question of fairness.
A franking credit is simply tax already paid on company profits and is designed to avoid double taxation. Abolishing the refund to taxpayers where their personal average rate is lower than the company tax rate, yet still collecting the additional top-up tax where their personal rate is higher than the company rate, does not seem equitable. In addition, those hardest hit by the measures will be self-funded retirees. This hardly seems like fair reward for years of saving for their own retirement.
In the superannuation space, franking credits are again the main point of divergence. Labor’s proposed measures will hit the self-managed super fund sector the hardest.
Labor has also proposed some tweaks to the super contributions limit and tax on contributions. This would further reduce the existing super concessions for medium to high income earners.
To discuss how the tax measures discussed might impact on your personal circumstances, please contact a Synectic adviser today.