Taxation and Superannuation Policies- Federal Election 2019

The 2019 Federal Election will take place on Saturday 18 May. With campaigning in its final days, we have taken the opportunity to summarise the impact of key tax and superannuation policies proposed by the Australian Labor Party and the Coalition.

Australian Labor Party

Cost of managing tax affairs

Introducing a $3,000.00 cap on managing taxation affairs of individuals, trusts and partnerships in order to prevent the spending of large amounts of money on accounting advice to significantly reduce taxable income.

Individual small businesses with positive business income and a turnover of under $2 million will be exempt.

Proposed effective date: 1 July 2019

Negative gearing

Negative gearing will be limited to new investment properties from 1 January 2020. All investments made prior to the effective date will not be affected by the implementation of the new policy.

Capital gains tax (“CGT”)

CGT discount will be reduced from 50% to 25% in relation to assets held longer than 12 months.

However, changes in relation to the CGT discount will not apply to the 50% active asset reduction concession (applicable to small businesses) and superannuation funds.

The proposed effective date for the CGT discount reduction is 1 January 2020.

Ending cash refunds for excess imputation

Removal of the concession in relation to cash refunds of excess dividend imputation credits for individuals and superannuation funds from 1 July 2019.

Recipients of the aged pension and other allowance receipts will be protected from the removal of cash refunds for excess dividend imputation credits when the policy commences.

Self-managed superannuation funds with at least one pensioner or allowance receipt before 28 March 2018 will also be exempt from the changes.

This policy will not be applicable to ATO endorsed income tax exempt charities and not-for-profit institutions with deductible gift recipient status.

Taxation of family discretionary trusts

Commencement of a minimum tax rate of 30% for discretionary trust distributions to beneficiaries over the age of 18.

Some trusts will be exempt from this policy, namely: special disability trusts, testamentary trusts, fixed trusts, cash management unit trusts, fixed unit trusts, public unit trusts, farm trusts and charitable and philanthropic trusts.

Budget deficit repair levy

Reinstatement of the Budget Deficit Repair Levy of 2% for taxpayers with taxable income in excess of $180,000.00.

Fringe Benefit Tax (“FBT”) rate will be increased to 49% and will cause consequential changes to other tax rates linked to the top personal tax rate.

Low and middle income tax offset (“LMITO”)

A tax reduction of $350.00 for workers earning up to $37,000.00 a year.

For those individuals earning $37,000.00 and $48,000.00 a year, the value of the offset will increase up to the maximum offset of $1,080.00.

Close the First Home Super Saver Scheme

The ability to make voluntary contributions into superannuation funds to save for a first home will be closed.

Australian Investment Guarantee

Businesses will be able to immediately deduct 20% of the value of eligible depreciable assets in the first year of all new investments. The remaining balance will be depreciable in line with regular depreciation schedules from the first year.

New jobs tax cut

Companies with a turnover of less than $10 million will be able to claim an additional 30% tax deduction on the salary for up to five new employees who are:

  • younger than 25, or older than 55, or
  • a parent, or carer; or
  • unemployed for three months or more.

This policy is capped at a maximum of $50,000.00 per company.

Research and development tax incentive

The introduction of a 10% collaboration premium for businesses expenditure on approved research and development undertaken in collaboration with universities an public research agencies, such as the CSIRO. The premium will be able to be claimed by firms that engage in activities such as:

  • cooperating with the CSIRO or a university to develop an innovative new product;
  • hiring PHD students to do industrial research with a company;
  • employing recent PHD graduates in the first three years of employment and embedding industry researchers within a university facility.
Director identification number fees

Issue every Australian company director with an identification number, with the aim of better tracking directors and tackling the practice of illegal phoenixing.

Include labour hire in TPRS to combat phoenixing

Inclusion of all labour hire contracting firms in the Taxable Payment Reporting System to increase tax compliance in a phoenix-risk sector. This scheme will be used to protect workers from exploitation.

Deductions for multinational debts

Limiting debt deductions for multinational companies to a worldwide gearing ratio. The amount of debt will be limited to the debt to equity ratio of the entire global group.

Multinational royalty payments

Preventing multinationals from an entitlement in receiving a tax deduction for royalties when they are paid by a firm with a $1 billion or more of global turnover to a related party in a transaction that is subject to the “sufficient foreign tax test” aspect of the Diverted Profits Tax regime.

A multinational will be eligible for the tax deduction where the firm can substantiate to the Commissioner of Taxation that the royalty payments are not for the dominant purpose of tax avoidance.

Multinational tax
  • Deny deductions from companies for travel to and from tax havens;
  • Increase penalties for individuals and entities promoting tax evasion and avoidance (i.e. $2.1 million for an individual, or $10.5 million for a body corporate, or three times the consideration received or receivable);
  • Requiring all individual Australian taxpayers to notify and declare to the ATO if they have residency or citizenship in any other jurisdiction and where;
  • Introduce public reporting of country by country reports;
  • Introduce a public accessible registry of the beneficial ownership of Australian listed companies and trusts;
  • Introduce mandatory shareholder reporting of tax haven exposure, whereby companies will be required to disclose to shareholders if the company is doing business in a tax haven;
  • Introduce the Australian Transaction Reports and Analysis Centre data and require the annual public release of international cash flow data;
  • Require all firms tendering for Australian Government contracts with more than $200,000.00 to state their country of domicile for tax reasons; and
  • Develop guidelines for tax have investment by superannuation funds.
Double FIRB fees and penalties

Double foreign investment application fees that currently apply to residential real estate and double the maximum financial penalties for breaches of foreign investment rules that apply to residential real estate.

Whistleblower Protections

Provide protection to those who report on entities evading tax to the ATO through the following mechanisms:

  • Establishment of a Whistleblower Rewards Scheme;
  • Establishment of a Whistleblower Protection Authority;
  • Amending current whistleblower laws with a single Whistleblower Act; and
  • Fund a special prosecutor to bring corporate criminals to justice
Transparency

• Require that the ATO’s annual report provide information on the number and size of tax settlements;
• Restore the $100 million threshold for public reporting of tax data for private companies;
• Appoint a community sector representative to the Board of Taxation to receive feedback in tax design and review processes.

Vacant property tax and foreign

Facilitate processes to introduce a uniform vacant property tax across all major cities and an increase in fees for overseas investors purchasing real estate, and an increase on penalties when overseas investors break the law.

Banking Fairness Fund

The creation of a $160 million per year Banking Fairness Fund which will provide important community services that support victims of banking misconduct. Labor will double the number of financial counsellors across Australia allowing financial counsellors to assist an additional 125,000 Australians every year.

SMSF direct borrowing

Limit direct borrowing by self-managed superannuation funds.

Fast track superannuation guarantee

Ending the freeze of the Superannuation Guarantee at 9.5% and increasing the Superannuation Guarantee increase to 12%. Further, a phase out of the $450 minimum monthly income threshold for eligibility for the superannuation guarantee has been proposed.

Super contribution caps and thresholds
  • Lower the annual non-concessional contributions cap from $100,000.00 to $75,000.00;
  • Further lower the high-income superannuation contribution threshold to $200,000.00 from $250,000.00; and
  • Reverse the introduction of catch-up concessional contributions and changes to tax deductibility for personal superannuation contributions.
Competition and Growth Taskforce

Create a Taskforce to sit within treasury and include staff from diverse backgrounds, including: not-for-profits, superannuation and cooperatives and mutual sectors.

The responsibilities of the Taskforce will be to examine the structure, distribution and effects of capital ownership in Australia.

Liberal- National Coalition policies

Personal income tax cuts
  • Phase 1: From 1 July 2022, the top threshold of the 19% personal income tax bracket will increase from $41,000.00 to $45,000.00
  • Phase 2: From 1 July 2024, the 32.5% marginal tax rate will be reduced to 30%;
  • Phase 3: From 1 July 2024, the 37% bracket will be abolished
Low- and middle-income tax offset

Low-and-middle-income earners will receive immediate additional tax relief by more than doubling the low- and middle-income tax offset.

  • Phase 1 (LMITO): The value of the offset in relation to workers earning between $37,000.00 and $48,000.00 P.A. will increase up to the maximum benefit of up to $1,080.00
  • Phase 2: From 1 July 2022, the LITO will increase from $645.00 to $700.00. The increased LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500.00 and $45,000.00. The LITO will then be withdrawn at a rate of 1.5 cents per dollar between taxable incomes of $45,000.00 and $66,667.00.

The increase to the top threshold of the 19% personal income tax bracket and the changes to LITO will lock in the reduction in tax provided by the LMITO when the LMITO is removed.

Increase Medicare levy low-income threshold

Low-income taxpayers will continue to be exempt from paying the Medicare Levy.

Fast track lower taxes for small business

Corporate tax rate for small and medium businesses will be reduced further from 27.5% to 25% by 2021-22 benefiting around 970,000 companies.

Unincorporated businesses with a turnover of less than $50 million, will receive an increase in their tax discount rate to 16%.

ABN Holder Requirements

From 1 July 2021. ABN holders with an income tax return obligation will be required to lodge their income tax return, and from 1 July 2022 ABN holders will be required to confirm the accuracy of their details on the Australian Business Register annually.

Division 7A changes delayed

The commencement date to Div 7A will be delayed by 12 months to 1 July 2020. The proposed amendments announced in the 2016 and 2018 proposed budgets will further be reviewed with stakeholders following responses to Treasury on its Consultation Paper.

Helping Australians buy their first home

The scheme will enable first home buyers to purchase a house with a deposit as low as 5%. The scheme will commence on 1 January 2020, first home buyers with an income of up to $125,000.00 annually or $200,000.00 for a couple will be eligible.

Improving flexibility of the superannuation system

Members of regulated superannuation funds do not have any restrictions in making voluntary contributions prior to reaching 65 years of age. From 1 July 2020, the age limit will be increased and allow 65 and 66 year old’s to contribute even if they do not meet the current work test requirement.

Additional flexibility relating to restriction to an individual claiming a spouse contribution tax offset are proposed to implemented from 1 July 2020. Spouses aged between 70 to 74 will be eligible if they meet the work test. Spouses aged between 65 and 66 will not be required to meet the work test at all.

Superannuation election policies
  • Extend the maximum size of a self-managed superannuation fund from 4 to 6 members;
  • Expand pension loans scheme to provide around 1.8 million Australians the option to draw down on more of the equity in their own home;
  • Allow contributions to superannuation from the proceeds of downsizing: this will be capped at $300,000.00 for eligible Australians aged 65 and over;
  • Continue to allow self-managed superannuation funds to borrow on a non-recourse basis.
Superannuation- other measures
  • Superannuation fund trustees will be allowed to calculate exempt current pension income on a preferred method basis from 1 July 2020;
  • Permanent tax relief from 1 July 2020 for qualifying superannuation funds that have merged;
  • SuperStream will be expanded to include the transfer of information and money between employers, superannuation funds and the ATO, with an effective date from 31 March 2021;
  • An expression of interest process will be undertaken by the government to identify ways of supporting the establishment of a Superannuation Consumer Advocate.

Authors: Michael Kohn and Ellen Karakoussis

Disclaimer

This article does not constitute legal advice, it is commentary on a topical issue. If anything discussed in this article concerns you please seek legal advice.

Queries

Should you wish to discuss any of the above matters, please contact a member of our Tax team

The Author

Michael Kohn

PARTNER, MELBOURNE