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Is a change of government ahead? A comparison of Labor and Coalition promises

April 2019

With an election in May; we've compared the proposed taxation and superannuation policies from both Liberal and Labor parties, and what the looming federal election outcome may mean for the future.

Income Tax

In relation to income tax cuts there are minimal differences in the short term. Labor has stated it will retain stage one of the Coalition Government's already legislated tax cut plan which commenced 1 July 2018 but will look to deliver larger and permanent tax cuts from 1 July 2019 (intending to unwind stages two and three which are legislated from 2022 and 2024). However, Labor will look to reintroduce the Temporary Budget Repair (TBR) Levy from 1 July 2019; being an additional 2% applied where the taxable income exceeds $180,000.

The short term plans are outlined below detailing minimal differences (excluding the proposed reintroduction of the TBR levy):

Graph 1 LibLabor

Labor long term tax plan is quite simple: no further tax cuts beyond what is promised for the 2019 Financial Year. Labor suggest they will deliver further income tax cuts when it knows what the future economic circumstances are and look to repeal the Coalition Government’s original legislated tax cuts from July 2022 and July 2024.

On the other hand, the Coalition’s budget indicated their long-term plans, which mainly benefit people earning more than $90,000 / year.

For medical professionals the impact will be in the reintroduction of the TBR levy; this will revert the highest marginal tax rate to 49% including Medicare and TBR levy as proposed by Labor from 1 July 2019.

  • Taxing distributions from discretionary trusts at 30%

Labor propose to introduce a new standard minimum tax rate of 30% on discretionary trust distributions made to adult beneficiaries from 1 July 2019. They estimate this proposed change will not affect 98% of individual taxpayers yet will affect 318,000 discretionary trusts.

A good opportunity to consider and review your structure and whether it is most appropriate for your circumstances.

  • Reduction of CGT discount

Currently where an investment is held for > 12 months’ individuals are entitled to a 50% discount on any gains made. Labor are proposing to reduce this discount to 25% for individuals (superannuation funds and small business assets are not impacted).

Given grandfathering will apply to all investments made before the date of effect there is minimal planning that needs to be done in relation to this change.

  • Division 293

Division 293 refers to additional 15% tax imposed on concessional contributions made where your taxable income (plus concessional contributions) exceeds $250,000.

Labor are proposing to reduce the threshold from $250,000 to $200,000 with no start date announced.

A tax saving of 17% (or 19% should TBR levy be reintroduced) will still apply for medical professionals paying the highest marginal rate.

Other Measures Proposed by Labor
  • Fast tracking the increase to Superannuation Guarantee to 12% as soon as practicable (currently set for 1 July 2025)
  • Limit the deductions for tax advice by introducing a cap
  • Limit negative gearing to newly constructed housing from 1 July 2019

Proposed superannuation policies

If the Labor Party wins the upcoming federal government election, they have announced a number of superannuation policies they intend to implement. These include:

  • Franking Credits

The most talked about policy is the removal of the ability of franking credits to be refunded.

Under this policy most SMSFs that are completely in retirement phase (i.e. paying no tax) will no longer receive a refund of the franking credits which they are currently entitled to.

However, where a SMSF has at least one member who has been receiving an Australian Government pension (age pension, disability support pension and so on) before 28 March 2018, the SMSF will be exempt from this change.

  • Non-Concessional Contribution Cap

Proposing to reduce the annual Non-Concessional Contribution (NCC) cap from the current cap of $100,000 down to $75,000 per year.

This will in turn impact the bring-forward cap available, reducing it from $300,000 to $225,000 over 3 years.

  • Reintroduction of the 10% Test for claiming a tax deduction for personal contributions

Since 1 July 2017 all individuals are entitled to claim a tax deduction for any personal contributions made to a complying superannuation fund.

Labor intend to revert back to the pre-1 July 2017 rules which limit this deduction to individuals who have employment income less than 10% of their total income i.e. are self-employed.

Medical professionals will need to review employment and private practice arrangements to ensure eligibility for a tax deduction applies for concessional contributions made should the test be removed.

  • Banning New LRBAs

Proposing to remove the ability for SMSFs to utilise Limited Recourse Borrowing Arrangements (LRBAs).

LRBAs that are already in place will not be affected by this rule.

It should be noted that obtaining a LRBA within a SMSF is already becoming increasingly difficult with many financial institutions no longer offering this type of lending.

Thinking about buying your own rooms; the future is uncertain in relation to LRBA.

  • Removing the catch-up concessional contribution concession

This measure was introduced from 1 July 2018 to allow individuals to access their unused concessional contributions cap over five years; provided the superannuation balance is less than $500,000.

Labor will remove the catch up concessional contributions measure; however no start date has been proposed.

Careful consideration should be given if you were proposing to utilise the catch up in future years; with a change in Government an opportunity may be missed to contribute to Superannuation.

The Liberal government have already introduced a number of measures over the past years and currently have a number of proposals, from last years’ budget, being drafted or with parliament to discuss/approve which include:

  • Increasing the number of members for a SMSF from 4 to 6
  • Introduction of a 3-year audit cycle
  • Opt-out of Super Guarantee for employees with multiple employers
  • Changes to Non-Arms Length Income provisions
  • Super Guarantee Amnesty and integrity measures 

Further proposals from the Liberal party are focused on large non SMSF Superannuation Funds and include:

  • Opt-in for insurance cover for members age below 25 who have not contributed to the Fund for 13 months
  • Introduction on a cap on fees charged to low balance accounts and banning exit fees
  • Requirement that one third of directors are independent for industry funds
  • Allow ATO to combine and manage super accounts with balance less than $6,000

Want to find out more about the proposed taxation and superannuation policies? Contact our team today!

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