Race to the election – what does it mean for you and your business?
2016 is shaping up to be a pretty hectic year from a political perspective. An election year affects the way the whole country moves forward. Not just in the sense of which party may win the election but also the potential distraction to progress an election causes. The Federal Government is currently in ‘caretaker’ mode which means that no new legislation can be passed and some major Government projects are put on hold until the outcome of the election is known.
Having said that I do continue to be involved in consultations on the ATO’s Single Touch Payroll and other initiatives, so there is still some movement afoot.
As we saw on 3 May 2016, the Federal Budget was handed down with no significant reform contained within the Budget measures. An ease in to the election race. There is banter about what each party feels is key to advancing Australia’s economy, jobs and addressing the deficit. Here is a summary of some of the tax and superannuation promises to keep a watch on while we continue the race to the election:
- Negative Gearing
On the one hand, negative gearing is seen as part of reason why Australia’s house prices are going through the roof. On the other, it is a great mechanism for people who want to invest in property as it provides some tax relief against the income produced by the property.
Prime Minister Malcolm Turnbull has stated that he won’t be touching negative gearing as he feels that it will hurt everyday Australians with a rental property.
The Labor party on the other hand are promising that, if elected, they would limit the application of negative gearing to only new investment properties as they feel that it will create an extra 25,000 construction jobs per annum and go some way to assisting with housing affordability.
- Capital Gains Tax (CGT)
The Coalition government has not given any indication of wanting to amend the CGT rules; however the Labor government feels that the CGT discount should be reduced from 50% to 25%.
Labor intends that both the negative gearing and CGT discount changes would apply for properties purchased from 1 July 2017.
Currently in Australia, you do not pay CGT on properties that are your principal residence but CGT does apply to properties that you hold as investments. The CGT discount is available once you have held the asset for over 12 months. Therefore, the most significant impact would be to investors (in addition to the negative gearing changes).
If Labor were to be elected, they believe that their proposed measures should help curb property prices and make property more affordable for first home buyers and become a disincentive for investors. Investors will be paying a lot more CGT on the sale of investment properties as well as potentially not being able to claim tax deductions for their rental mortgages.
- Company Tax Rate
As part of the Federal Budget, the Coalition announced that the definition of small business will be altered to include businesses with an annual turnover of less than $10 million and that eventually every business in Australia will enjoy a 25% tax rate.
While the Labor party supports lowering the rate, they believe it should be restricted to small businesses only – businesses with an annual turnover of less than $2 million.
Seems we have both the Coalition and the Labor party agree that the company tax rate should decrease and that it assists with making it more attractive to be “doing business” in Australia and therefore should boost employment. The difference really is who it applies to and at which level the change would have the desired impact.
- Individual/Marginal Tax Rates
As part of the Federal Budget, the Treasurer announced that the Temporary Budget Repair Levy which applies to individuals in the top marginal tax bracket (i.e. over $180,000) will cease at the end of the 2016-17 financial year.
Labor has indicated that if elected, they would move to retain the budget repair levy (they have not said how long for).
Another measure that was announced as part of the Federal Budget was that there would be an increase to the income threshold for the second highest marginal tax bracket.
Given the timing of the Budget announcement and the looming election, it means that the legislation to make this effective from 1 July 2016 will not be passed in time and instead of changes being made to the marginal tax tables, the adjustment will be made at the time the individual lodges their income tax return (i.e. not in the payroll).
- Superannuation changes
Both the Coalition and Labor party agree that curtailing the superannuation concessions, especially at the wealthier end of the spectrum is required.
That said, Labor do not seem to be entirely aligned with the measures that the Coalition is proposing and in particular, the fact that some of these measures will have retrospective effective dates.
As part of the Federal Budget, some pretty key measures were announced that impact superannuation:
- Lifetime Non-Concessional Contributions Cap $500,000
At present, non-concessional contributions are capped at either at $180,000 per annum or at $540,000 every three years under the bring-forward provisions).
The lifetime cap will take into account all non-concessional contributions that have been made on or after 1 July 2007 and will be indexed to the Average Weekly Ordinary Time Earnings (AWOTE).
- Additional superannuation contributions tax for high income earners
For individuals with incomes of $250,001 and above, additional tax on concessional contributions will apply (down from $300,000 currently).
This means an additional 15% tax will apply to concessional contributions for high income earners (in addition to the standard 15% contributions tax by the superannuation fund) meaning that these individuals are effectively taxed at 30%.
It is important to note that this additional tax does not apply to excess concessional contributions above the concessional contributions cap.
- Work test and contribution restrictions for individuals 65-74 years
Up until now, people aged between 65 and 74 years old have been restricted as to the amount they contribute into superannuation.
The work test will be removed from 1 July 2017 for individuals under 75 years old and they will also be able to receive contributions from their spouses.
- Introduction of a $1.6 million transfer balance cap for pension phase
Although it is estimated to only affect less than one percent of superannuation members, it is worth discussing this measure as it applies to both retirees and those that have not reached their pension phase as yet and is estimated to raise approximately $2 billion in revenue.
From 1 July 2017, the Government is proposing that the cap will apply on the amount of accumulated superannuation an individual can transfer into a tax-free pension phase.
I hope this has helped you identify a few election promises to keep a watch on for businesses and investment. We have a ways to go in this election though. With the Government in caretaker mode, we won’t know if some of the Budget measures discussed will come to fruition or whether significant Government projects like Single Touch Payroll will come to a grinding halt if Malcolm Turnbull is not reinstated as Prime Minister
I’ll keep watching out for policies that may impact your business, payroll and superannuation, so keep an eye on my blog.
Written by: Angela Lehmann