Post election analysis
With the federal election now over, what’s next for Aussie businesses and families?
In this analysis, we outline the key tax policies put forward by our re-elected Government, and their likely impact on:
- small businesses
- large and international businesses, wealthy individuals and groups
- businesses investing in innovation, research and development
- individuals and families
- those making superannuation and retirement plans
- primary producers and tourism operators.
In summary
The outlook is favourable for small businesses, which continue to be supported by the Government with various investment incentives. The Government has also already passed the laws required to increase the instant asset write-off threshold to $30,000, and to reduce the company tax rates for small and medium companies.
Despite Labor’s commentary during the federal election campaign, the Government has enhanced its financial commitment and has taken many steps – including legislative and administrative means – to reduce tax avoidance among larger organisations and wealthy individuals. However, those who are law abiding should not expect to be impacted by any major tax changes.
We expect there is a sense of relief among tax payers that Labor’s proposed restrictions on franking credits and negative gearing will not happen, so minimising the impact on what could have been a longer term (possibly negative) impact on Australia’s asset investment landscape.
Whilst the Government appears to remain committed to supporting innovation and R&D tax incentives for innovative businesses, their level of enthusiasm and commitment to support development in this area into the future remains unclear.
Income tax rates for individuals and families was the major battle ground during the election. This will continue to be the case while the Government endeavours to get their announced policies through both the House of Representatives and the Senate.
Most tax payers would welcome the Government’s limited changes to superannuation, which provide more certainty for those planning for retirement.
There is less certainty, however, as to what will happen to a significant number of policy proposals that were made during federal budget, such as the amnesty for unpaid superannuation contributions by businesses, or the proposal to disallow expense deductions for vacant land to prevent ‘landbanking’ by property developers. Legislation on these and other measures was not passed prior to the election. We await further announcements from the Government to confirm the status of these tax related measures.
With any queries, please contact your local Bentleys advisor.
Small business
Investment incentives remain the focus
Small businesses would appreciate the Government’s policies that serve to incentivise and simplify their tax. The Government managed to pass legislation for changes that support investment incentives for businesses before the election. Raising the instant asset write-off amount to $30,000, and extending the range of companies that can qualify by raising the turnover threshold to $50 million, are favourable outcomes for small and medium sized business owners. Any measures that serve to simplify tax would be welcomed by business owners, given the administrative complexity of the tax depreciation rules.
The business community also welcomed the Government’s skills package, which was announced in the federal budget to boost apprenticeships and training, as well as the confirmation of the announcement to boost the Export Market Development Grant budget by $60 million, which assists companies seeking to expand to overseas markets.
There is little else immediately on offer in this area as the company tax cuts have been legislated and the final 25% rate for qualifying companies will not apply until 2021-22.
For the Government to maintain its small business friendly focus, it will need to build on the existing announced measures. The capital investment measures proposed by Labor during the election campaign may provide an interesting model to build on. Labor’s proposal was an additional 20% upfront deduction for investment in capital assets that would not qualify for the instant asset write-off for companies of all sizes, followed by application of the normal depreciation rules. The benefit of a broader pooling system for capital investment depreciation is worthy of further exploration for the potential simplification it could bring.
| Government |
|---|
| Extension to instant asset write-off for eligible assets to $30,000 and companies with turnover not exceeding $50 million will be law. |
| 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. |
| 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. |
Large and international business, wealthy individuals and groups
No change to tax on investments, so onwards and upwards
The Government 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 by providing $1 billion in new funding over the next four years to extend the activities of the Tax Avoidance Taskforce and to expand its programs and coverage.
Labor’s much discussed measures to restrict relief for borrowing to buy assets, removal of cash refunds for surplus franking credits, and halving the discount on capital gains, will not now happen, so investors should have greater certainty about their post-tax returns and financial reward for taking risk investing in capital assets.
| Government |
|---|
| Increased funding for the ATO's Tax Avoidance Task Force until 30 June 2023 |
| No changes to negative gearing proposed |
| No changes to franking credits proposed. |
| 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%. |
| No changes to tax deductibility of professional fees for managing tax affairs for individuals |
| ATO funding to collect unpaid taxes and superannuation |
| Cross border tax arbitrage rules strengthened |
Innovation, research and development
There is a lack of vocal support for the innovation sector
| Government |
|---|
| No changes announced |
Individuals and families
Income tax cuts remains a major battleground
The Government proposes to raise immediate upfront cash refunds for the lower paid, and to simplify the tax brackets by removing the 32.5% and 37% income tax rates. These measures will have the effect of lowering tax payments for a large number of middle and higher rate taxpayers. The benefits for middle and higher paid taxpayers will not be felt for another five years, assuming the Government win the next election. The question now is will the Government be able to get the complete tax reform package, or the promised tax refunds for the lower paid, through the current parliament?
One of the issues that may still return to affect a number of property owning Australians is the 2017 budget proposal to remove the capital gains tax main residence exemption from non-residents. This was supposed to have been legislated and effective from 1 July 2019, but has not yet been passed into law by the parliament. Prior to the federal election, unofficial Government statements indicated that this measure would be dropped, but there has been no official confirmation of this. We await further announcements from the Government to confirm the status of this measure.
For the many families that use trust structures to operate their businesses and shield their assets from risk, the return of the Coalition to Government confirms there will be no changes to tax rates for trusts, which should bring welcome certainty going forward.
| Government |
|---|
| 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 $1 |
| Low and middle income tax offset increased to $1,080 from $530 for earnings between $40,000 and $90,000 |
| Low and middle income tax offset reduced at 3c per $1 for earnings between $90,001 and $126,000 |
| 19% income tax threshold increased from 2022-23, and abolished from 2024-25 |
| 32.5% income tax threshold increased to $120,000 from 2022-23, and abolished from 2024-25 |
| 30% income tax threshold applied to incomes between $45,001-$200,000 from 2024-25 and 37% income tax rate eliminated |
| 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 2024-25 |
| Medicare levy threshold increased |
| No changes to tax rates for trusts |
Superannuation and retirement
Some useful simplifications and enhancements to super
With Labor’s proposals to reduce the tax reliefs and benefits available for contributions to superannuation no longer at play, the Government’s measures (announced in the 2018 federal budget) should be effective in simplifying and enhancing the current system.
Most taxpayers hope for minimal future changes going forward given the significant changes that were made in 2017-2018. We expect a period of stability would be welcomed by all.
| Government |
|---|
| 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) |
| Increase age limit for spouse contributions from 69 to 74 |
| Simplify costs and reporting for superannuation funds |
Primary producers and tourism operators
The Government 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. This proposal will benefit industry if its legislation is successfully passed in parliament.
| Government |
|---|
| 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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