Labor have made a commitment to tax reform in their reply to the Federal Budget. Here are the key takeouts from Labour.
Personal Tax Cuts
The Labour party has matched the Coalition Governments tax refunds and promised extra tax cuts for low-income earners. Under Labor, a person earning below $45,000 a year would receive an offset of $350 in their next tax return, about $100 more than the Coalition ($255).
Top marginal tax rate
The Labor Party intends to increase the top personal tax rate for four years from 45% to 47% (which will mean 49% including the Medicare levy) for those individuals whose taxable income exceeds $180,000.
Caps on deductions for tax management expenses
Labor is proposing to cap the amount individuals can deduct for the management of their tax affairs at $3,000 from 1 July 2019. This will affect individuals, trusts and partnerships. Taxpayers can currently claim expenses relating to preparing and lodging their tax return and activity statements without limit.
Excess dividend imputation credits
At present, individuals, superannuation funds, and charities can claim cash refunds for excess dividend imputation credits that exceed tax payable. Labor’s policy is that from 1 July 2019 individuals and superannuation funds will be denied such refunds.
30% minimum tax rate on discretionary trust distributions
The Labour Party proposes to introduce a standard minimum 30% tax rate for discretionary trust distributions to adult beneficiaries (people over the age of 18). The measure aims to address tax minimisation and artificial income splitting.
The Labour Party will limit negative gearing to new housing from 1 January 2020. All investments made before this date will be fully grandfathered. Negative gearing currently enables investors to deduct investment losses from their other taxable income.
Capital Gains discount halved
This proposal will result in halving the capital gains discount for all assets purchased from 1 January 2020 from 50% to 25% for assets held longer than 12 months. Investments made before this date will be grandfathered and not affect superannuation funds which will continue to be entitled to a 33% CGT discount.
Foreign investment in residential property
The Labour party plan to announce a uniform vacant property tax across all of Australia’s major cities from 1 July 2019.
New Australian Investment Guarantee / Instant Asset Write-Off
The Labor Party is proposing a New Australian Investment Guarantee (AIG) comprising a 20% capital allowance write-off in the year of purchase of an asset from 1 July 2021 for investments in excess of $20,000.
Company Tax Rate
Labor has previously announced that it would not repeal the enacted tax cuts (reduced to 25% by 2021-22) for SME companies with less than $50 million aggregate annual turnover (base rate entities) that are already legislated to come into effect.
Non-concessional cap reduced to $75,000
The Labor Party proposes to reduce the non-concessional cap (subject to the $1.6 million total superannuation balance) to $75,000 from the current $100,000. The $1.6 million total superannuation balance cap will not change.
Concessional deductions for employed taxpayers denied
Employed taxpayers will no longer be able to contribute deductible superannuation contributions where their employer contributes less than $25,000 on their behalf.
High income superannuation contribution threshold
The Labor Party proposes to lower this further to $200,000 meaning that more workers will be subject to additional tax of 15% on their superannuation contributions.
Abolition of catch-up concessional contributions
The Labor Party opposes the introduction of catch-up concessional contributions over a five-year period that commenced on 1 July 2018 as introduced by the Coalition Government. Currently taxpayers can only contribute concessional contributions up to the annual cap ($25,000), but if the contribution for one financial year is less than $25,000, they can carry forward any unused cap to be contributed above the $25,000 cap in future years.
The Labor Party proposes, to end the freeze of the superannuation guarantee at 9.5% and return to the proposal to increase the superannuation guarantee to 12% over time.
Borrowing by SMSFs prohibited
The Labor Party has consistently said that they will prohibit SMSFs from entering limited recourse borrowing arrangements for housing investments. A LRBA involves a SMSF taking out a loan from a third party lender and using the loan to purchase an asset in a separate trust with investment returns going to the SMSF.
Research & Development
R&D Tax Incentive unchanged
The Labor Party has committed to preserve the R&D Tax Incentive and it may introduce new measures to the R&D Tax Incentive to incentivise private-public collaboration. The Labor Party has set a national goal of 3% of GDP to R&D by the end of the next decade.
For more information, please contact our professional accounting team at Sullivan Dewing.