With the 2019 Budget week having concluded following the formal delivery of the 2019/20 Federal Budget by the Treasurer on 2 April 2019, and the Opposition response on 4 April 2019, it’s now “game on” in terms of policy positions as the electorate starts to consider where they will cast their vote in the upcoming election.
For some voters, the decision on where they cast their vote will be influenced by where the future elected Government will focus their spending. In this respect, both sides of politics have made announcements for spending on defence, education, welfare, health, transport and infrastructure. Often, expenditure in these areas will not show an immediate benefit to individuals, but can form the basis for longer term changes. The actual or perceived benefits of expenditure in these areas will differ from person to person, and in this paper there will not be a comparison of the relative benefits from such expenditure.
For many however, reform or changes to areas such as taxation or superannuation have a more immediate impact because of their ability to influence shorter term actions. To help provide you with an overview of the differences (or in some cases consistency) in positions, the following is a comparison of the more significant positions proposed by both sides of politics, drawn from announcements during both Budget week itself, and at other times as both sides have positioned themselves towards the upcoming election.
Both the Coalition and Labor parties are in agreement on the need to provide additional tax relief to low and middle income earners. There is also consistency in the view to lift the level of tax offset available to individuals with more than $48,000 of taxable income and up to $126,000. Both sides are in agreement on a maximum offset of $1,080 being available to those with taxable incomes between $48,000 and $90,000 and a gradual phase out of the benefit up to a taxable income of $126,000, with the changes to have effect for the current financial year (ie from 1 July 2018).
Difference for lower income earners
However, it is in relation to lower income earners that the first difference arises:
- The Coalition has proposed a minimum tax offset of $255 for those with taxable income up to $37,000 and a gradual increase until taxable income reaches $48,000.
- Labor have instead proposed a minimum tax offset of $350, again with a gradual increase until income reaches $48,000 at which point the maximum $1,080 offset is available.
Difference for middle to high income earners
More significant differences in approach arise when it comes to the issue of the broader reform of the marginal tax rates and thresholds that apply to individuals.
- The Coalition has already legislated (subsequent to the 2018/19 Federal Budget) for changes to take effect to this system through to 2024/25. In this year’s Federal Budget, the Coalition announced further changes.
Under the Coalition policy the following changes will occur:
- From 1 July 2022, the current taxable income threshold of $37,000 where an individual moves from a 19% marginal tax rate to a 32.5% marginal tax rate will rise to $45,000 – a $4,000 increase in the threshold level announced in the previous Federal Budget. At the same time, the upper threshold for application of the 32.5% tax rate is scheduled to rise from $90,000 to $120,000 of taxable income.
- From 1 July 2024, whilst in government the Coalition has already legislated for the existing marginal tax rate of 37.0% that would then have applied to taxable income between $120,001 and $180,000 to be removed, with the same marginal tax rate to then apply to taxable income between $45,000 and $200,000. In this year’s Budget, the Coalition have indicated their intent to reduce that applicable marginal tax rate from 32.5% to 30.0% from 1 July 2024. The existing 45.0% marginal tax rate would then apply to taxable income above $200,000.
The Labor party is not supportive of this level of reform to the personal marginal tax rates and thresholds, specifically not to the changes due to take effect from 1 July 2024. If elected, we would expect the Labor party to look to legislate for the proposed 2024 changes not to take effect, although it is not clear to what extent they would seek to make changes to the existing rates and thresholds due to apply from 1 July 2022.
However, what the Labor party has proposed is the re-introduction of the 2% “budget repair levy” for those generating taxable income greater than $180,000. In recent times Labor have confirmed this effective increase in the highest marginal tax rate from 45% to 47% (excluding Medicare) would be a temporary increase until 2023.
In the 2019/20 Federal Budget, the Coalition announced that small businesses would receive an extension of the ability to immediately write off (ie deduct for tax purposes) the value of an eligible asset. This immediate write down will be extended to 30 June 2020, and the write off value lifted to $30,000 (from $20,000) for assets purchased after 7:30pm AEST on 2 April 2019. Additionally, they proposed that the definition of a small business eligible for this will be increased from business valued at up to $10 million to those valued at up to $50 million.
The Labor party has indicated it would support this measure, although it has proposed a broader measure they have termed the “Australian Investment Guarantee” that would allow any Australian business (irrespective of its size) to immediately deduct 20% of the purchase price of any eligible asset purchased that is worth more than $20,000.
Negative gearing and capital gains tax (CGT)
The Coalition haven’t announced any changes to the taxation rules on negative gearing arrangements and capital gains discounting. As such at this point we have to assume that their position is to maintain the status quo.
The Labor party has however announced changes, restating their policy position prior to the 2016 Federal election. Whilst there has been a lot discussed about these changes, as a reminder the Labor party position is as follows:
- From 1 January 2020, negative gearing will only be permitted in respect of a geared investment into newly constructed housing purchased on or after that date. Any deductions for geared investments (whether property, shares, or managed funds) purchased from that date will be limited to the assessable income generated by the investment. Any excess interest costs can be added to the cost base of the asset for determining the level of any future capital gain.
- For assets purchased on or after 1 January 2020 that would be entitled to a 50% CGT discount on sale under existing rules, that discount will be reduced to 25%.
Grandfathering arrangements will apply to geared investments and CGT calculations for assets purchased before 1 January 2020. That is, the current rules allowing negative gearing deduction and a 50% CGT discount will continue to apply to those investment assets.
Refund of imputation credits
The Labor party remains committed to amending the law such that where an individual or super fund has excess imputation credits remaining after calculation of its tax payable, those excess imputation credits will be forfeited, rather than refunded. This change, which is due to take effect from 1 July 2019, is a return to the position that applied before 1 July 2000.
A “pensioner guarantee” exemption is available to allow for the refund to continue in specific circumstances.
The Coalition’s policy positon is to allow the refund of excess imputation credits to continue.
Taxation of distributions from discretionary trusts
The Labor party has stated that where a distribution is made from a discretionary trust (such as a family trust) to a beneficiary aged at least 18, that distribution will be taxed at a minimum of 30%. If the beneficiary’s effective tax rate is less than 30%, they will not receive a refund of the difference. If it is higher, they will need to pay the difference as additional tax. Some trusts (eg testamentary trusts) will be exempt from this change.
The Coalition has not announced any policy position in this area.
Given the significant changes to superannuation that largely took effect from 1 July 2017, the Coalition did not make many announcements around super in the 2019/20 Federal Budget. However, the changes they did announce can only be viewed as positive. Broadly the changes announced will, from 1 July 2020, allow someone with less than $1.6 million in super to:
- Make contributions to super without the need to meet a work test until they turn 67. Currently the work test applies from your 65th birthday.
- Receive a spouse contribution until they turn 75. Currently, a spouse contribution can only be received before the receiving spouse turns 70.
The Labor party has previously made a number of announcements around superannuation however, which include the following:
- The annual contribution limit for non-concessional (after tax) contributions will be lowered from $100,000 to $75,000. It is expected the requirement to have less than $1.6 million in order to qualify to make these contributions will continue to apply.
- The level of adjusted taxable income a person can have before an additional 15% tax is applied to concessional contributions made to their super will be lowered to $200,000 (from the current level of $250,000).
- The ability to carry forward any unutilised concessional cap space for up to 5 years to allow a greater concessional contribution cap in the future (subject to certain criteria) will be removed.
- The changes that took effect from 1 July 2017 to allow all eligible taxpayers to claim a deduction for contributions made to their super fund will be reversed, and the position that applied before that change will be reinstated.
- A ban on future borrowings within a superannuation fund.
What are the next steps?
With an election set for 18 May 2019, the policy positions for both sides largely remain just that - announcements of their stated intent if they were successfully elected.
Even when it becomes known who is able to form Government after the election, the measures will still need to be successfully passed through the parliamentary processes and it is possible that the final version of these measures could be different to that which has currently been stated. It is important therefore not to rush out and take action on what is currently just a potential future outcome in case changes are made.
The best course of action however is to continue to monitor development on both sides of politics through the election and subsequent parliamentary process to ensure informed decisions can be made at the right time.
The information has been prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac), and is current as at 11 April 2019.
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Any case studies and examples used on this website are purely for illustration only.
The tax position described on this website on the 2019-20 Federal Budget update is a general statement and is for guidance only. It has not been prepared by a registered tax agent. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. It is important to note that the policies outlined in this website are yet to be passed as legislation and therefore may be subject to change or further refinement. Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investments held in superannuation. The Government has set caps on the amount of money that you can add to your superannuation each year and over your lifetime on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or registered tax agent or visit the ATO website.