Client Communication

A simple summary comparison of the Coalition and Labor policies

There’s been a lot happening in Canberra over this last week with the Federal Budget announcement, the Labor Party reply speech and of course, all the talk of the upcoming Federal election.

One thing that has become clear is that the tax policies of the major parties with particular reference to tax cuts – including who will get them, how much and when – will form a cornerstone of this election campaign.

To clear the somewhat muddied waters we have provided a comparison of the Coalition and Labor Party tax policies which have been outlined at this stage.  This may change over the course of the election campaign but it’s a good starting point.

Coalition

Labor Party

Personal tax cuts

The Coalition has announced that they will increase the low and middle income tax offset from $530 to $1,080 and increase the base rate from $200 to $255 for the 2019 income year – this means when individuals lodge their 2019 income tax return they will see the benefit.

This will apply for all financial years until 20 June 2022.

From 1 July 2022:

  • Increase the top threshold of the 19% personal tax bracket from $41,000 to $45,000
  • Increase the low income tax threshold from $645 to $700

From 1 July 2024:

  • Reduce the 32.5% marginal tax rate to 30%
  • The entire 37% tax bracket will be abolished
  • Taxpayers earning between $45,000 – $200,000 will have a marginal tax rate of 30%
In their reply speech the Labor Party confirmed the following:

  • They have backed the increase to the low and middle income tax offset to $1,080 however they propose to increase the base rate to $350
  • They will roll back the tax cuts already legislated due to come in from 1 July 2024 and will not support tax rate cuts to higher income earners

The Labor Party has also announced a top marginal rate of tax of 49% for those taxpayers with taxable income in excess of $180,000 which reflects a reintroduction of the “temporary deficit reduction levy”.

Other previously announced tax Labor policy change, which may impact individuals, includes a cap on the amounts individuals can claim for managing tax affairs to $3,000.

There has been very little detail provided as to how this cap will operate.

Instant asset write off

From budget night the threshold for the instant asset write off will increase from $25,000 to $30,000 and will be available to companies with aggregated turnover less than $50M Labor has put forward the Australian Investment Guarantee.  This guarantee will allow all businesses in Australia to immediately deduct 20% of any new eligible assets worth more than $20,000, with the balance depreciated in line with normal depreciation schedules from the first year.  Labor has said this will be a permanent change.

 

Superannuation

If passed, individuals aged 65 and 66 will be able to contribute to superannuation without having to pass the work test Currently, Labor’s superannuation policies includes the following:

  • Reduction of non-concessional cap to $75,000 (from $100,000)
  • The threshold for Division 293 tax to be reduced to $200,000 (from $250,000)
  • Abolish catch up concessional contributions to $25,000 per annum
  • Remove the deductibility of personal contributions for employed persons
  • Borrowing by SMSFs to be prohibited
  • Expansion of superannuation guarantee to include parental leave and wages less than $450 per month
  • Committed to the low income superannuation offset
  • Increase superannuation guarantee rate to 12% when prudent

Negative gearing

No proposed changes Limit negative gearing to newly built housing from 1 January 2020

Existing investments will be grandfathered

Capital gains tax

No proposed changes Halve the 50 % CGT discount for all assets purchased from 1 January 2020 to 25%

Investments made before this date will be fully grandfathered

Policy change will not impact superannuation funds

 

Franking credits

No proposed changes From 1 July 2019 remove refundable franking credits for individuals and superannuation funds

Some pensioners will be exempted

Discretionary trusts

No proposed changes Labor will introduce a standard minimum 30% tax rate for discretionary trust distributions to adult beneficiaries

It will not apply to special disability trusts, deceased estates, fixed trusts, farm or charitable trusts

 

If you have any questions on how our findings may impact you or your business please contact Holman Hodge on 08 7099 5000

Lisa Pritchard

Lisa is our tax advisory expert who offers practical and commercial business advise. She is passionate about making tax information simple to understand and relevant to client needs.

This material has been provided for informational purposes and is general in nature.  As such it should not be used a substitute for obtaining professional accounting, legal or tax advice relevant to your circumstances.  There is no guarantee that the policies proposed by the political parties will be enacted into law, and are subject to change at any time.

Holman Hodge Client Update – Jan 2019

2019 – A year of change

With a new year upon us, it seemed a good time to consider some of the changes we may see in 2019.

 

There will be a Federal Election

We know there will be a Federal election this year and at this stage, we expect it to be held in May.

The current Government hasn’t yet released much information around its’ proposed tax changes however, they have moved the Federal Budget announcement forward by about a month to Tuesday 4 April which is when we expect to see their proposed changes outlined.

The Labor Party however, has already announced some of their tax policies which includes the following:

  • Removal of negative gearing for assets
  • The removal of the refund of excess franking credits for most taxpayers (charities and NFPs will be exempt from the changes)
  • Halving the current 50% CGT discount to 25%
  • Applying a 30% tax rate to the income of trusts

Without any further details or legislation, it is impossible to know how these changes will be implemented and therefore what the initial and ongoing impact will be to individuals, trusts, superannuation funds and subsequently, the property market and share market.

If you would like to discuss the potential impact of these proposed changes, please contact your Holman Hodge adviser.

 

The Personal Property Security Act (PPSA) turns 7 years old

Why does this matter?

When the PPSA was first introduced in January seven years ago, the cheapest registration was for a period of seven years or less.  If this was the option taken, it means the registration may soon expire.  If you have registered any interests on the Personal Property Securities Register (PPSR) under the PPSA you should review your registration.

This is important for a number of reasons:

  • If the registration lapses you will no longer have security over the item, and
  • A lapsed registration cannot be renewed  – a new security interest needs to be registered but it’s important to note that the new security interest might not have the same priority as the original registration

If you renew the registration before it lapses, the original date of registration will stand and original priority will continue.

Please let us know if you would like further information on how to review your registered interests.

 

Final report- Financial Services Royal Commission

As most people would be aware, the Financial Services Royal Commission (commonly called the “Banking Royal Commission”) was held last year.  The final report is due to be provided to the Governor-General on 1 February 2019. Without wanting to guess the outcomes of the Royal Commission, we expect that the level of compliance will increase for the finance industry, which may result in some wholesale changes to the banking, finance and superannuation industries.

These changes may have flow on effects for business, investment and personal borrowings – we have already seen the tightening of rules around assessing credit card applications from 1 January.

We await the outcomes and recommendations of the Royal Commission and will provide further information at that time.

 

The company tax rate changes will be bedded down

The company tax rate for most companies who have aggregated turnover of less than $50M (for the 2018-19 financial year) will be 27.5%.  This tax rate will drop to 25% by the 2021-22 financial year.

These changes, coupled with other announced and/or enacted changes which impact small businesses, such as the small business capital gains tax concessions and Division 7A, may also mean that the way businesses and investments are structured should be reconsidered.

 

The Division 7A rules may change

In 2018, the Government released a consultation paper outlining some fairly significant proposed changes to Division 7A (refer to client update).  Submissions were made by a number of professional bodies and we are yet to see anything further from the Government.  The proposed start date of these changes was intended to be 1 July 2019.

 

Reminders…

myGov – where individuals link their myGov account to the ATO, please note that the majority of your ATO mail will only be sent to you via your myGov inbox.  As your Tax Agent, we will no longer receive copies or notification of correspondence from the ATO on your behalf.  Click here for more detail

SA Payroll Tax changes – from 1 January 2019, businesses who have total wages less than $1.5 million will no longer have to pay Payroll Tax in SA.  Click here for further details

ATO scam phone calls – as previously advised, please be aware of scam phone calls from the ATO.  Unfortunately we are still seeing an increase in these calls.  If you receive a call and they say they are from the ATO and you owe them money, please DO NOT pay anything over the phone and contact us straight away.

If you would like to discuss any of the above in more detail, please speak with your Holman Hodge contact.

Holman Hodge Client Update – Nov 2018

Reduction in small business company tax rate brought forward

It took Parliament just 3 days to introduce, debate and pass legislation to bring forward the reduction in the corporate tax rate for small and medium businesses.

The applicable tax rates will now be:

2017 – 2018 27.5%
2018 – 2019 27.5%
2019 – 2020 27.5%
2020 – 2021 26%
2021 – 2022 25%

The Small Business Income Tax Offset rate will also increase in 2020-2021 to 13% and to 16% in 2021-2022 but it is still capped at $1,000.

 

Consultation paper released- Division 7A

Last week the Government released a consultation paper – “Targeted amendments to the Division 7A integrity rules”. Many clients will be aware that Division 7A is an integrity measure which operates to stop individuals accessing funds which have only been taxed at the corporate tax rate, rather than the individuals’ marginal tax rate.

We have been expecting amendments to Division 7A however, the proposed changes were expected to be largely in line with the Board of Taxation’s final report provided into the review of Division 7A which was done back in 2014. From a review of the consultation paper the changes proposed vary, in some parts significantly, from the Board’s original recommendations.

Treasury is taking submissions on this consultation paper up to 21 November 2018 and where appropriate, Holman Hodge will provide input to this process. As further information becomes available from Treasury, we will contact affected clients.

 

Payroll tax changes in SA

As many employers would be aware, the State Government announced in the SA State Budget that from 1 January 2019, entities whose payroll is less than $1.5 million will no longer have to pay payroll tax (PRT). As this falls in the middle of a financial year, it could complicate things a little.

Below is a summary of how the new payroll tax thresholds are expected to apply:

  • Threshold changes
    • The threshold for liability increases to $1.5M
    • Where a business exceeds the $1.5m wage limit, the tax free threshold remains at $600,000
    • If the payroll for a business is between $1.5M and $1.7M the rate increases on a sliding scale from 0% – 4.95%
  • The process for businesses currently paying PRT who won’t need to after 31 December is as follows:
    • 1/7/18 – 31/12/18 – if full 12 months wages are expected to exceed $600,000 employers are liable in this period
    • 1/1/19 – 30/6/19 – if full 12 month wages are expected to exceed $1.5M employers are liable in this period
    • Businesses below $1.5M for 2018-19 will not be liable for PRT in Jan – June period
    • They will not be able to cancel registration until 30 June 2019
    • Will not need to lodge monthly after 31 December 2018
    • Will lodge an annual reconciliation in July 2019 and can then deregister

It is expected that there will be a calculator on the RevenueSA website closer to 31 December to help employers work out obligations

 

Scam phone calls

Another reminder to everyone that scam phone calls to individuals are on the rise with clients and staff both reporting phone calls received from a government authority (they don’t always state where they are from) where they say something along the lines of:

  • Your file has been flagged for tax avoidance
  • If you pay a sum of money immediately (whilst on the call) you will avoid any further action
  • The matter is time sensitive and you must reply immediately
  • A warrant has been or will be issued for your arrest

It has been reported to us by those who have answered the calls that the people calling can be very aggressive. If you don’t take the call, it’s likely a very formal sounding recorded voicemail message will be left stating some variant of the above. The most recent spate of calls show as originating from Canberra.

What should you do?

  • Contact us if you are concerned – we can confirm whether the ATO has any outstanding matters with you
  • You can report the caller to the ATO scam by clicking here (https://www.ato.gov.au/General/Online-services/Identity-security/Verify-or-report-a-scam/)
  • You can report the scam to ACCC by clicking here (https://www.scamwatch.gov.au/report-a-scam)
  • Do not give any personal details to someone over the phone unless you are absolutely certain who you are talking to
  • Block the number

 

If you would like to discuss any of the above in more detail, please speak with your Holman Hodge contact.

SA State Budget 2018-2019

Impacts on small business in SA

On Tuesday 4 September 2018 the Treasurer Rob Lucas released the first Liberal Budget after 16 years in Opposition. We perhaps expected to see a budget with harsher cuts, however the Marshall Government seems intent on driving efficiency within the public sector where they can while still supporting infrastructure and jobs growth with the overall hope to provide better outcomes for SA.

For small business, the budget provides some real relief in the form of payroll tax reform, land tax changes and a reduction in the Emergency Services Levy.

 

Payroll tax

The payroll tax threshold has been raised to $1.5 million meaning that approximately 3,000 businesses will no longer have to pay payroll tax. There will be a progressive transition up to a $1.7 million threshold, however businesses with a payroll over $1.7 million will still have only the first $600,000 of payroll exempt from the tax. These changes will apply from 1 January 2019.

We expect that this will provide a number of our clients with payroll tax relief which will be welcomed.

The issue remains for those with a payroll near or above $1.7 million that any incremental increase in payroll costs will come with the additional cost of payroll tax.

 

Land tax

The tax-free threshold is increasing from $369,000 to $450,000 from 1 July 2020 and a new 2.9% rate has been introduced for land ownerships valued between $1.2 million and $5 million. This should result in more than 50,000 land owners having a reduced land tax liability with around 8,000 no longer having a land tax liability at all.

 

Job accelerator grant

The Job Accelerator Grant was available to businesses who registered between 1 July 2016 and 30 June 2018. The Job Accelerator Grant provided a $10,000 payment (made in two $5,000 payments over two years) where business could show they had created and maintained new positions within their business. This grant was not extended in the budget.

 

Snapshots

  • More than $200 million has been committed to support the creation of 20,800 traineeships and apprenticeships over the next 4 years
  • Infrastructure spending of $11.3 billion has been committed to over the next four years
  • There will be a reduction in the Emergency Services Levy
  • A South Australian Productivity Commission will be established
  • Approximately 4,000 jobs within the public sector will be cut over the next four years
  • A number of industry funds and grant programs have been replaced by three specifically targeted funds – the Economic & Business Growth Fund, the Research, Commercialisation and Start-up Fund and the Regional Growth Fund

If you would like any further information in relation to the above, please contact you Holman Hodge adviser.