With an early federal budget planned for 2 April and an upcoming election which may result in a change of government, I thought it would be helpful to give you an overview of some key Opposition policies around tax and superannuation.
Please note below are only proposals announced by the Opposition as at the end of February 2019.
The ability to negatively gear an investment property would be limited to new housing only. The proposed commencement has not been announced. Grandfathering would apply to any investments made prior to the commencement date.
Capital gains tax discount
The Opposition announced an intention to reduce the capital gains tax (CGT) discount to 25% for eligible investors. This change will not apply retrospectively and no commencement date has been announced.
Currently, where a CGT asset is disposed of after being held for 12 months, Australian investors are entitled to a 50% discount on realised capital gains. This means only 50% of the realised gain is added to the investors’ personal incomes for tax assessment.
The Opposition’s proposed that franking credits would no longer be refundable where dividends are received after 30 June 2019. However, it would still be possible to use franking credits to offset a tax liability and to reduce tax payable to nil.
After the initial policy announcement in 2018, the Opposition announced modifications to the proposal to exempt recipients of social security pensions/allowances and SMSFs where at least one member was a social security pension/allowance recipient prior to 28 March 2018.
Limited Recourse Borrowing Arrangement (LRBAs) or borrowing through SMSF would be prohibited. Finer policy details are not known at this point in terms of whether existing arrangements would be grandfathered.
Personal tax rates
The Opposition has proposed that the top marginal tax rate be increased from 45% to 47% (excluding 2% Medicare Levy). This would apply to individuals earning more than $180,000 p.a. In addition to this, stages two and three of the legislated tax reforms would be abolished.
Stage two, due to take effect 1 July 2022, would see an increase to the income level at which the 37% tax bracket kicks in, from $90,000 to $120,000. Stage three, due to commence 1 July 2024, abolishes the 37% tax bracket, extending the 32.5% tax bracket to income levels up to $200,000.
Division 293 tax
The income threshold above which the 15% Division 293 tax is payable on concessional super contributions would be decreased to $200,000. When Division 293 tax was originally introduced, this income threshold was $300,000. It was subsequently reduced to $250,000.
Taxation on trust distributions
The opposition proposed a minimum tax rate of 30% to apply to distributions made to adult beneficiaries from discretionary trusts, which would commence from 1 July 2019.
Certain types of trusts would be exempt, including fixed trusts, testamentary trusts, special disability trusts and farm trusts.
As always, please call or email me if you wish to discuss anything.