Tax and Super If Labor Had Won
What would have happened to your tax and super if Labor had won the election in May 2019?
Tax and Super If Labor Wins
We wrote this article in March 2019, two months before the election in May 2019. Now we all know how it ended. But back then Labor’s agenda around tax and super caused quite a stir. And you never know. Agendas have a tendency to rear their head when nobody expects it. Any of these measures might come back to life in a future election.
# 1 Reduce Non-Concessional Contribution Cap to $75,000
The non-concessional contribution cap was to reduce from currently $100,000 to $75,000. So all up you would have been able to contribute $100,000 per year to super consisting of $25,000 concessional and $75,000 non-concessional.
# 2 Reduce Div 293 Threshold to $200,000
The Div 293 threshold was to reduce from currently $250,000 to $200,000 per annum under a new Labor government.
# 3 Eliminate Catch-up of Concessional Contributions
Anybody with a total superannuation balance of less than $500,000 can currently carry forward unused concessional cap space over 5 years. Labor was to abolish this concession.
# 4 Revive Work Test for Personal Super Contributions
From 1 July 2018 onwards taxpayers can claim a tax deduction for personal super contributions even if they don’t pass the work test. Labor had intended to re-introduce the work test.
# 5 Ban New LRBAs
Labor had intended to ban the use of new LRBAs to stop geared investment strategies within super.
# 6 Increase SG to 12% Faster
At the moment the superannuation guarantee is scheduled to hit 12% in July 2025. Labor wanted to get there earlier.
# 7 Extend SG to Wages Less Than $450 Per Month
There is currently a $450 minimum monthly income threshold for the superannuation guarantee. Labor wanted to eliminate this threshold so that everybody is entitled to super, even people in part-time, casual or multiple jobs.
# 8 ATO to Develop Tax Haven Guidelines
Labor wanted the Australian Tax Office together with ASIC and APRA to develop guidelines for superannuation funds about responsible investment with a particular focus on tax havens.
# 9 Ban Negative Gearing of Passive Assets
Labor had intended to limit the offset of investment losses to investment income and to remove any offset with PAYG income, unless the investment is newly constructed housing or grandfathered.
# 10 Reduce CGT Discount from 50% To 25%
The CGT discount for individuals and trusts was to reduce from 50% to 25% for assets held for more than a year. The 33.33% CGT discount for super funds was to remain unchanged for now. Small business assets would also be exempt from this change.
# 11 No Refund of Franking Credits
Labor had intended to ban the tax refund of excess franking credit. This was to take Australia’s dividend imputation system back to its original version under Hawke and Keating, before Costello and Howard introduced cash refunds in 2000.
Recipients of an Australian pension or allowance and any SMSF with at least one such member as of 28 March 2018 as well as charities and not-for profits institutions were to be exempt from these changes.
# 12 Charge 30% Tax on Discretionary Trust Distributions
Labor had proposed a standard minimum 30 per cent tax rate for discretionary trust distributions to adult beneficiaries over the age of 18.
# 13 Increase Top Marginal Tax Rate to 49%
The marginal tax rate was to increase from 47% plus 2% Medicare levy to 49% plus 2% Medicare levy taking the effective marginal tax rate to 51%.
# 14 Decrease SME Tax Rate to 25%
Labor and Liberals both proposed to reduce the tax rate for small and medium-sized businesses (turnover of up to $50 million a year) to 25 per cent by 2021/22 during the election campaign.
# 15 Reduce Tax for Low Income Earners
Labor had proposed slightly higher income tax rate cuts for people earning less than $125,000.
# 16 Limit Deduction for Tax Agent Fees to $3,000
Labor had proposed to cap deductions for managing tax affairs at $3,000.
# 17 Start Australian Investment Guarantee (AIG)
Labor was to introduce the Australian Investment Guarantee (AIG) as of 1 July 2021. The AIG would be a 20% capital allowance write-off in the first year.
# 18 Protect and Reward Whistleblowers
Labor had wanted to extend the protection of whistleblowers who report tax-evading entities to the ATO. Whistleblowers would receive a reward of up to $250,000, being a share of any tax penalties charged.
# 19 Appoint a Second Commissioner of Taxation
Labor wanted to achieve a clearer separation of ATO officials making tax assessments from officials handling disputes and appeals. For this purpose Labor wanted to establish the position of a Second Commissioner as the head of a new Appeals area within the ATO that would facilitate alternative dispute resolutions and manage tax disputes – from pre-assessment reviews through objections all the way to litigation and settlement.
# 20 Appoint Community Representative to Board of Taxation
The Board of Taxation – a non-statutory advisory body providing government with real-time advice on tax policy issues – is to contribute a business and tax community perspective to the design and operation of taxation laws. Labor had been calling for greater community representation and wanted to require one of the Board’s 11 members to be a community sector representative.
# 21 Disclose Number and Size of Tax Settlements
Labor had wanted the ATO to publish the number and size of tax settlements as well as report on aggressive tax minimisation schemes in its annual report.
# 22 Increase Penalties for Promotion of Tax Evasion Schemes
Labor had intended to increase penalties for individuals and entities promoting tax evasion and avoidance schemes.
# 23 Fund Free Tax Clinics
Labor had wanted to fund 10 free tax clinics to help low income taxpayers and micro-businesses with administrative tax matters. Labor’s initiative had been slightly different to Liberal’s plan, but not much.
# 24 Compulsory Disclosure of Residency and Citizenship
Labor was to require taxpayers to disclose their residency or citizenship of other countries so the ATO can target their data matching with other countries accordingly.
# 25 Deny Tax Deduction for Travel to Tax Havens
Under Labor, any deduction for travel to and from tax havens was to be denied.
# 26 Tighten Thin Capitalisation Rules
Labor had proposed to remove the safe harbour thin capitalisation and arm’s length debt test in the thin capitalisation rules, keeping the world-wide gearing ratio as the only test for interest deductions.
# 27 Tighten MEC Group Rules
Labor had intended to remove tax advantages and inconsistencies between multiple entry consolidated groups (MEC) compared to Australian consolidated groups. These inconsistencies allow MEC groups to retain higher cost bases reducing future capital gains and increasing depreciation deductions. MEC groups are corporate groups, treated as a single taxpayer, consisting of Australian-resident entities that share a common ultimate foreign owner.
# 28 Decrease Tax Transparency Threshold to $100m
Private firms exceeding a certain revenue threshold need to publish their tax data. This threshold is currently $200m, but Labor had intended to reduce this to $100m revenue and hence bring large private firms in line with the reporting threshold for public companies.
# 29 Disclose CbC Reports to Public
Significant global entities with links to Australia have to lodge country-by-country (CbC) reports with the ATO. These reports give high-level tax information about where and how much tax the SGE paid around the globe. An SGE is any entity that is part of a group with global revenue exceeding $1 billion. Labor had wanted a public disclosure of these CbC reports.
# 30 Disclose Tax Haven Exposure to Shareholders
Labor had wanted to introduce mandatory shareholder reporting of tax haven exposure. Companies would have to disclose their ‘Material Tax Risk’ to their shareholders if the company is doing business or holding assets in a tax haven.
# 31 Disclose Country of Tax Domicile in Government Tenders
Labor had intended to ask all firms tendering for Australian Government contracts worth more than $200,000 to state their country of domicile for tax purposes.
# 32 Disclose AUSTRACT Cash Flow Data
Labour was to require the annual public release of Australian Transaction Reports and Analysis Centre (AUSTRAC) data reports as well as the annual public release of international cash flow data.
# 33 Increase Compliance Funding
Labor had intended to provide an additional $50 million per annum to the ATO to enforce multinational tax compliance.
# 34 Establish a Central Registry of Companies and Trusts
Labor had wanted to establish a publicly accessible central registry of companies and trusts listed in Australia to allow beneficial ownership tracing and better transparency.
So this is what would happened to your tax and super if Labor had won in May 2019 and got its way. You never know. They might still get there.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 21 January 2020