The federal election is looming with a speculated May election, but all the major parties stand quite differently on tax. How are we meant to make sense of the policies amongst the politics?
With the both major parties budget intentions now on the table, it’s time to unpack what these would mean for Australians. There are five major areas of tax that we can expect to be shaken up, particularly if there is a change of government.
- Personal tax cuts
- Franking credits
- Discretionary trusts
- Negative gearing
- Capital gains tax
Personal tax cuts
For starters, the coalition have announced a three-stage process for tax cuts. This begun in 2018 with the increasing of the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000. Following this, the coalition plan to increase this bracket again from $90,000 to $120,000 at the start of financial year 2022/23. Finally, the coalition plans to increase this bracket yet again from $120,000 to $200,000 thus removing the 37 per cent bracket completely.
Labor intend to roll back the latter two stages of this if elected, as well as looking to cap the amount individuals could deduct for the management of personal tax affairs. There is intended to be a carve-out for individual small businesses with positive business income and annual turnover up to $2 million.
Labor intend to do away with the current system of individuals earning below the $18,200 threshold receiving refund for all their imputation credits. Proposing a return to the system instated in the 80s during Bob Hawke’s stint as PM whereby imputation credits can be used to reduce tax, but shareholders will not receive cash refunds from the government. Pensioners will be excluded from this system through a “pensioner guarantee.” Scott Morrison and the coalition currently have no policy in place for removing franking credits.
While the coalition has no plan to tax discretionary trusts, Labor intend to introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to mature beneficiaries. Labor intend to reduce income splitting use through this plan, minimising tax. There are some carve-outs intended for non-discretionary trusts with this plan, such as deceased estates, etc. Farm or charitable trusts will also be exempt.
While the coalition have not announced any intention to change the current policies for negative gearing, Labor intend to limit negative gearing to newly built housing from 2020. Investments previous to 2020 will not be affected, being grandfathered and still allowed to claim deductions.
Capital gains tax
Labor hope to reduce the capital gains tax discount for assets held longer than 12 months from 50% down to 25%. The CGT discount is not intended to change for small business assets. The coalition’s focus for CSG changes are on eliminating foreign residents’ entitlements to claim the main residence exemption when they sell property in Australia. However, these have seemingly been put on hold.
With budgets and the election just around the corner there are bound to be further changes proposed and will update you on those as they are announced.