Labor’s Proposed Policies if elected

April 2019 | General

With the election just over 4 weeks away, we thought this would be a good opportunity to highlight some of Labor’s key policies and the effect that they could have on you.

Polls are giving Labor a clear lead, although it’s narrowed a bit.

With Labor promising higher taxes, larger government and more intervention in the economy, the May election presents a starker choice than has been the case since the 1970s.

Under Labor’s proposal, franking credits will continue to count as personal tax already paid for those wealthy enough to pay tax. Retirees who are too poor to pay tax are told the franking credit is “a bonus from the government to which you are not entitled”. Only those in receipt of a government pension or allowance will be exempt from this policy.

For ease in reviewing the proposed policies, we start by providing a Summary Table which is followed by more detailed commentary.

Tax
  • Immediate tax cuts to remain for low-to-middle income earners
  • No flattening of 30% tax rate
  • Reintroduction of Temporary Budget Repair Levy
  • 30% minimum tax rate for family trust distributions
  • Removal of ability to use property and investment losses against all assessable income
  • No refunds for excess franking credits
  • Reduction in CGT discount from 50% to 25%
  • Limit of $3,000 per year for deductions relating to costs of managing tax affairs
Superannuation
  • Reduction in threshold for increased 30% tax on concessional super contributions from $250,000 to $200,000
  • Removal of deductions for all individuals making additional concessional contributions
  • Removal of catch up concessional contributions
  • Reduction in non-concessional contributions from $100,000 to $75,000 per annum
  • Disallowance of all borrowings for SMSFs
Small Business
  • Enacted tax cuts for certain companies to go ahead
  • Extension of instant asset write off for another year to 30 June 2020
  • Australian Investment Guarantee to allow accelerated depreciation claim for eligible assets in the first year

Personal Tax

Immediate Tax Relief

Labor will support the increase to the low-to-middle-income Tax Offset, however, with changes to the applicable amounts. Employees earning up to $37,000 will receive a tax cut of up to $350 and those earning between $37,000 and $90,000 a year will be eligible for the maximum of tax cut of $1,080 rather than the $37,000 to $90,000 bracket proposed by the Government. The offset is set to be available from 1 July 2019.

Tax Rates

The proposed reduction to the 37% tax bracket to 30% for those with incomes between $45,000 to $200,000 has been opposed by the Labor party.

In addition, Labor intends to increase the top personal tax rate to 47% (including Medicare levy) with the re-introduction of the Temporary Budget Repair Levy, which applied in the 2015 to 2017 financial years, on income earners above the $180,000 threshold.

Finally, Labor propose a new standard minimum tax rate of 30% on discretionary trust distributions made to adult beneficiaries. This will mean Family Trusts will be unable to split their income between spouses and children to utilise their tax free thresholds.

Both the re-introduction of the Temporary Budget Repair Levy and introduction of 30% minimum tax rate for discretionary trust distributions is set to apply from 1 July 2019.

Negative Gearing

Bill Shorten is proposing changes to limit negative gearing to new housing only, from 1 January 2020. This will prevent taxpayers from being able to deduct their investment losses against their other taxable income. Any investments prior to this date will not be affected by these changes.

This could further damage an already weak Property Market, so be prepared to see the value of your family home eroded, as there are less buyers in the market.

Franking Credits

From 1 July 2019, Labor will deny any cash refunds for excess franking credits for individuals and superannuation funds. Instead, excess franking credits will be converted to non-refundable offsets and carried forward to future years. The Labor party has clarified exemptions will be available under the Pensioner Guarantee which provides exclusions for:

  • Every recipient of an Australian Government pension or allowance; and
  • SMSFs with at least one Australian Government pensioner before 28 March 2018.

Other

The Labor party has also announced policies relating to a reduction in the available Capital Gains Tax (CGT) discount from the current 50% to 25% for eligible assets held for over 12 months.

Further, a proposed limit of $3,000 is set to apply for tax deductions relating to costs of managing tax affairs in any one year.

Superannuation

Division 293 Tax

The current income threshold of $250,000 for Division 293 tax is set to be reduced to $200,000. Under this rule, taxpayers earning over $200,000 taxable income (including rental property losses and superannuation contributions), will be required to pay tax on their concessional contributions of 30% rather than 15%.

Personal Super Contributions

Labor has proposed the removal of the tax deductibility of personal super contributions for all taxpayers. This may mean the 10% test is re-introduced and employees earning more than 10% of their income from employment sources will be ineligible for tax deductions on their contributions.

Catch-up Contributions

The current catch-up contributions rule allows individuals to carry forward their unused concessional contributions limits for up to five years so additional contributions can be made in subsequent years. Labor has proposed the removal of this option.

Reduction in Non-Concessional Contributions

The non-concessional contribution cap is set to reduce from $100,000 to $75,000 per annum.

Borrowings in SMSF

Labor has announced it will prohibit direct borrowing by SMSFs for property investments, that is, remove the ability for SMSFs to utilise limited recourse borrowing arrangements to acquire property.

Small Business

Company Tax Rates

Labor will support the corporate tax rate reduction to 25% by 1 July 2021 for companies with aggregated turnovers under a $50 million threshold.

Instant Asset Write-off

The proposed extension to the instant asset write-off to 30 June 2020 have been supported by the Labor party and has been supplemented with the introduction of the Australian Investment Guarantee.

Australian Investment Guarantee

The Labor party have proposed the Australian Investment Guarantee which will allow business from 1 July 2021 to:

  • Immediately deduct 20% of eligible depreciable assets over the cost of $20,000; and
  • Depreciate the balance in line with normal depreciation rates.

Labor’s higher tax and regulation agenda could erode the value of Australian assets.

Think carefully before casting your vote – tell your family and friends!

Important information and disclaimer

This publication has been prepared by AustAsia Group, including AustAsia Financial Planning Pty Ltd AFSL License No 229454 and AustAsia Accounting Services Pty Ltd, Registered Tax Agent No 7587 3005.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing, 23 April 2019. Some of the information has been provided to us by third parties. Whilst it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of AustAsia Group, nor their employees or directors give any warranty of accuracy, nor accept any responsibility, for any errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.

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