2019 federal election: Can you choose?

In this busy pre-election period, policies put forward by the different parties can be a moving feast.

We compare the key tax policies of the Liberal-National Coalition (Coalition) and the Australian Labor Party (Labor) with this high level analysis for:

In summary

Both the Coalition and Labor parties are supporting small businesses with investment incentives, particularly with changes to the instant asset write off. However, Labor has proposed extra benefits with upfront deductions for investments in capital assets.

Both are taking a tough stance with anti-tax avoidance among larger organisations and wealthy individuals, and Labor is taking additional measures to have a longer term (possibly negative) impact on Australia’s asset investment landscape.

Both are committed to supporting innovation and R&D tax incentives for innovative businesses into the future, however there is detail lacking on both sides.

Income tax rates for individuals is the major battle ground, with Labor favouring the lower income earners and the Coalition favouring the higher income earners.

Labor is committed to increasing employer super contributions for individuals in a weakening economy, although the sustainability of this policy is unclear.

With any queries, please contact your local Bentleys advisor.

Investment incentives delivered all round

Both the Coalition and Labor are supporting investment incentives for businesses. Raising of the instant asset write-off amount to $30,000 and extending the range of companies that can qualify, have been popular simplification measures and are incentives for small and medium companies to invest in capital assets.

Labor has taken a step further by proposing an additional 20% upfront deduction for investment in capital assets that would not qualify for the instant asset write-off. As this has been deferred to 2021, it will not have an immediate impact on the large number of businesses which exceed the $50 million turnover threshold.

Labor did not originally support the Coalition’s proposals to lower the standard rate of company tax from 30%, but they eventually agreed to cut the rate to 25% phased in over five years. However, as the price for Labor’s support, the turnover cap of $50 million was not lifted, and the Coalition appears to have given up on lowering the 30% standard company tax rate to 25% for all companies. Australia’s standard company tax rate currently remains near the top of global rankings for multi-nationals. We do not expect to see either side reducing the 30% rate during this election cycle.

Extension to instant asset write-off for eligible assets to $30,000 and companies with turnover not exceeding $50 million will be law.Instant asset write-off supported. In addition will introduce an Annual Investment Guarantee for eligible assets acquired from 1 July 2021. This will give a 20% upfront tax deduction for all companies, with the remainder depreciated over useful life.
No changes to company tax rates with 30% being the standard rate. Tax rate for companies with turnover up to $50 million will reduce from 27.5% to 25% by 2021-22 if they meet the maximum 80% passive income test.Change supported.
Significant changes to taxation of borrowings from private companies deferred to 1 July 2020.-
Expansion of Single Touch Payroll data collection.-
Strengthening the ABN system to combat avoidance/evasion.-

Labor makes post-tax profits from investing less attractive

The Coalition claims to have made significant progress in tackling tax avoidance by international companies and wealthy private groups through targeted anti-avoidance legislation and specialist focused units within the ATO. It has continued to fund the ATO’s compliance activities in the 2019 federal budget.

Labor supports the crack down on tax avoidance also, and has taken further steps to demonstrate it is taking a tough stance. Measures targeting offshore centres and ‘tax havens’ aim to be popular with the electorate.

Additionally, Labor has announced three linked measures that will have a much longer term impact on the asset investment landscape going forward. The introduction of tax restrictions on borrowing to buy assets, removal of cash refunds for surplus franking credits, and halving the discount on capital gains – all combine to make post-tax profits from investing much less attractive. Investors will have to look much more closely at the net return they expect to make from their investment activities and weigh that up against the risks involved.

Increased funding for the ATO's Tax Avoidance Task Force until 30 June 2023ATO to 'name and shame' serious tax evaders, and support increased compliance funding.
Measures announced to tackle multi-nationals from shifting profits offshore through royalty payments to ‘tax risk’ jurisdictions.
Additional public disclosure measures for tax risks:
- mandatory shareholder reporting of tax haven interests
- individual taxpayers to disclose residency or citizenship of other countries
- public disclosure of Country by Country international tax reporting by multi-nationals
- deny tax deductions for travel to tax havens
- ATO disclose number and size of tax settlements
- companies and trusts to publicly disclose beneficial ownership through a central register
- public reporting of AUSTRAC data showing international fund transfers
No changes to negative gearing proposedNegative gearing restrictions to apply to property and other passive assets acquired on or after 1 January 2020. Full impact unclear, but expected that losses arising from negative gearing on affected assets will be 'ring fenced' and only available for offset against future profits from those assets
No changes to franking credits proposed.Removal of cash refunds for franking credits from 1 July 2019.
No changes proposed to capital gains or capital gains tax discount. Capital gains tax discount for assets held for more than 12 months to remain at 50%. Capital gains tax discount to be reduced to 25% for disposals of assets acquired on or after 1 January 2020.
No changes to tax deductibility of professional fees for managing tax affairs for individuals$3,000 cap on professional fees for managing tax affairs for individuals
ATO funding to collect unpaid taxes and superannuation-
Cross border tax arbitrage rules strengthened-

R&D tax incentives supported, although details unclear

Both the Coalition and Labor promise to encourage innovation and research through tax and investment incentives, but there have been no headline announcements from the current government signaling the strength of that support.

In comparison, Labor has committed to a headline figure as a percentage of GDP, but this will not be reached for another 10 years. They have also announced measures to enhance the current R&D incentive – as a premium for collaborating with research institutions – but there is no detail on the requirements that will need to be met for this to be obtained.

No changes announcedCommited to spending 3% of GDP on R&D by 2030 and targeting an additional 10% premium for firms collaborating with research institutions

Income tax rates for individuals is the major tax battleground 

The Coalition has proposed raising immediate upfront cash refunds for the lower paid, and to simplifying the tax brackets by removing the 32.5% and 37% income tax rates, which will have the effect of lowering tax payments for a large number of middle and higher rate taxpayers. However, the benefits for middle and higher paid taxpayers will not have any effect for another five years and assumes the Coalition will win the current election, as well as the following election.

In contrast, Labor has only supported tax cuts aimed at the lower paid, and has committed to raise tax rates for the higher paid taxpayers by 2% with immediate effect.

Labor has stated that in its view discretionary trusts are used by the wealthy to minimize their overall taxes, and this is unfair and at the expense of taxpayers who earn PAYG and do not have the opportunity to reduce their taxes in this way. The role that trusts play in asset protection for family businesses has not been taken into account in formulating this policy however, and many entrepreneurs would have risk management has a key factor in setting up their business structures.

Low and middle income tax offset minimum of $225 for earning from $0-$37,000 rising to $1,080 for earnings up to $48,000 at 7.5c per $1Change supported for income earners up to $126,000, but minimum amount raised to $350
Low and middle income tax offset increased to $1,080 from $530 for earnings between $40,000 and $90,000Change supported for income earners up to $126,000
Low and middle income tax offset reduced at 3c per $1 for earnings between $90,001 and $126,000Change supported for income earners up to $126,000
19% income tax threshold increased from 2022-23, and abolished from 2024-25Unclear whether this is supported
32.5% income tax threshold increased to $120,000 from 2022-23, and abolished from 2024-25Abolition of 32.5% income tax rate not supported
30% income tax threshold applied to incomes between $45,001-$200,000 from 2024-25 and 37% income tax rate eliminatedIntroduction of 30% income tax rate and abolition of 37% income tax rate not supported
45% income tax rate to remain unchanged - highest marginal tax rate 47% (including 2% Medicare Levy) for incomes over $180,000, and over $200,000 from 2024-25Marginal income tax rate for incomes over $180,000 to be raised to 47% giving total marginal tax rate of 49% (including 2% Medicare Levy) from 1 July 2019
Medicare levy threshold increasedNo increase in Medicare levy proposed
No changes to tax rates for trusts30% minimum tax rate to apply to all distributions from discretionary trusts to adult beneficiaries. Farm trusts and charitable trusts will be excluded

Labor committed to increasing super contributions in a weakening economy

One of the surprises of the election campaign has been the proposals by Labor to make big reductions to the tax reliefs and benefits available for contributions to superannuation, while still increasing contributions by employers when the economy is weakening. If the policy aim of the superannuation system is to free the government from pension obligations for retirees, cutting some of the available tax concessions could cause future hardship by reducing super balances and therefore pension income leaving the State to pick up the balance.

Improved contribution eligibility for older Australians aged 65-66 - reforms applying from 1 July 2020:
- voluntary contributions without meeting the work test
- 3 years non-concessional contributions (capped at $100,000)
Significant changes proposed, but no start dates announced:
- non-concessional contributions cap reduced to $75,000 from $100,000
- additional 15% tax threshold for high earners lowered to $200,000 from $250,000
- remove the 3 year catch up concessional contributions
- remove tax deductibility for personal superannuation contributions
- maintain the Low Income Superannuation Tax Offset
- prohibit borrowings by Self-Managed Superannuation Funds
- end freeze on Super Annuation Guarantee to raise rate to 12% from 9.5%
Increase age limit for spouse contributions from 69 to 74-
Simplify costs and reporting for superannuation funds-

The Coalition offers additional benefits to industries in need via indirect taxes

The government’s proposed amendments to the Luxury Car Tax enable eligible primary producers to apply for a refund on any luxury car tax paid, up to a maximum of $10,000 (currently a maximum of $3,000), for vehicles purchased on or after 1 July 2019.

Increase luxury car tax refund for primary producers and tourism operators from $3,000 to $10,000-

With any queries, please contact your local Bentleys advisor.

General advice warning: This article has been prepared for the purpose of providing general information, without taking into account any particular investor’s individual objectives, financial situation or needs. You should therefore, before making any personal decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to your own objectives, financial situation and needs. We would be only too pleased to help if we can.

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