28 | Tax and Super If Labor Wins
What would happen to your tax and super if Labor wins the election in May 2019?
Tax and Super If Labor Wins
What would change if Labor could pursue its full agenda without any compromise? The answer is a long list. Many changes would affect most of us. Some would affect only a few. Let’s start with super.
# 1 Reduce Non-Concessional Contribution Cap to $75,000
The non-concessional contribution cap would reduce from currently $100,000 to $75,000. So all up you would be 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 would reduce from currently $250,000 to $200,000 per annum. Anybody earning less than the Div 293 threshold pays 15% tax on their concessional contributions. Anybody earning more pays 30%.
# 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 wants 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 intends to re-introduce the work test.
# 5 Ban New LRBAs
Labor intends 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 wants 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 wants 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 wants 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
Investors would only be able to offset investment losses with investment gains or a future capital gain. But there would no longer be an 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 would reduce from 50% to 25% for assets held for more than a year. The 33.33% CGT discount for super funds would remain unchanged for now. Small business assets would also be exempt from this change.
# 11 No Refund of Franking Credits
Under Labor, shareholders would no longer be able to obtain a tax refund of any excess franking credit. This would 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 would be exempt from these changes.
# 12 Charge 30% Tax on Discretionary Trust Distributions
Labor proposes 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 would 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 intend 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.
# 15 Reduce Tax for Low Income Earners
Labor proposes slightly higher income tax rate cuts for people earning less than $125,000.
# 16 Limit Deduction for Tax Agent Fees to $3,000
Labor proposes to cap deductions for managing tax affairs at $3,000.
# 17 Start Australian Investment Guarantee (AIG)
Labor would 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 wants 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 wants to achieve a clearer separation of ATO officials making tax assessments from officials handling disputes and appeals. For this purpose Labor wants 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 calls for greater community representation and would require one of the Board’s 11 members to be a community sector representative.
# 21 Disclose Number and Size of Tax Settlements
Under Labor, the ATO would have 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 wants to increase penalties for individuals and entities promoting tax evasion and avoidance schemes.
# 23 Fund Free Tax Clinics
Labor wants to fund 10 free tax clinics to help low income taxpayers and microbusinesses with administrative tax matters. Labor’s initiative is slightly different to Liberal’s plan, but not much.
# 24 Compulsory Disclosure of Residency and Citizenship
Labor would 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 would automatically be denied.
# 26 Tighten Thin Capitalisation Rules
Labor proposes to remove the safe harbour thin capitalisation and arm’s length debt test in the thin capitalisation rules, keeping the world-wide gearning ratio as the only test for interest deductions.
# 27 Tighten MEC Group Rules
Labor intends 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 intends 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 wants a public disclosure of these CbC reports.
# 30 Disclose Tax Haven Exposure to Shareholders
Labor wants 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 would require 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 would 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 intends 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 wants 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 happen to your tax and super if Labor wins and gets it all their way.
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 March 2019