Please find attached a summary we have constructed regarding the key tax and superannuation proposals made by the current Labor opposition which they intend to introduce should they form Government following the election process in May 2019, and compared to the Liberal policy position.
Obviously, there are significant changes in the wind, should we experience an election outcome that sees Labor obtain power. These changes will not impact everyone, but likewise are best understood.
This summary is clearly high level, and something on which we are engaging with our clients progressively as we work through the potential impacts at a more specific level.
Without wanting to tend too much into political commentary, given there is "plenty of that" in the media already, it is not lost on anyone that issues around franking credits and negative gearing are the main ones catching the headlines.
Labor hold a position that franking was only ever meant to remove double taxation, whilst Liberal maintains the line of the status quo. Whatever your perspective, the Labor outcome is likely to have a negative impact on retirees, low income earners and superannuants.
Labor believe their position on negative gearing is a fair one, however the wider ramifications and potential distortions and complexities may not be completely understood.
To us, on both sides it is frustrating to not see a better discussion evolving re inflation protection on asset cost bases in the determination of true capital gains achieved.
Whilst Labor has argued the current 50% CGT discount is too generous and favours shorter term gains comparably, it's not insignificant to look at what a drop to a 25% discount really means - the equivalent erosion of 10 years inflation protection. This is hardly an encouragement for long run asset holding and diversity of portfolios.
On the "positive side" Labor are indicating grandfathering of the 50% discount for assets already held and are not looking to cut active asset concessions to small business. They are also accepting existing negative gearing arrangements,and allowing losses on negative gearing of future investments to be offset against other passive (e.g. dividends and interest) income streams, but not business or salary income.
The taxation of trusts discussion has been around for a long time, and in prior iterations was not substantially concerning given ability to wash the tax credits through like franking, but with likely similar loss of excess franking credits, the game changes a bit, but not in an unmanageable way.
There are a variety of questions and pathways these issues contribute to.
A. If you are contemplating an asset changeover, should you accelerate that decision so as to acquire the replacement asset before the election and retain access to 50% CGT discounts on that asset into the future (rather than a reduced discount for assets acquired post)?
B. Are there are any restructuring moves you should make sooner?
C. Is your debt structured appropriately?
D. Should you remain in a trust, or move to a company, could you simplify to a partnership where the income levels of the trust make taxation of trusts a higher effective tax rate than present (noting need to always think about asset protection etc)
As with any investment or business decision, tax impacts should only form one component of your decision making process. It is important not to react and make decisions you otherwise would not make in reaction to these proposals, but the likelihood of these proposals being introduced in some form needs to be carefully considered with any decision.
We look forward to engaging with you more directly on these matters and more as we talk about what it means for you.
For assistance with any of the above, please contact Brentnalls SA.
Disclaimer: The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual financial situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.