What could change for taxpayers after the Federal Election?
With the Federal election only weeks away, both major parties have set out their plans for taxation of superannuation, especially as it relates to SMSFs. There are also new taxation plans for individuals and trusts. But it can be hard to wade through all the policy speeches and interviews, so here is a quick summary of the current law and the possible changes to come after the election:
| POLICY AREA | LIBERAL/NATIONAL | LABOR |
|---|---|---|
| Concessional contributions | Contributions to remain capped at $25,000 per year. Deduction available for personal concessional contributions, with catch-up provisions to allow unused contribution cap to be carried forward for up to 5 years. |
No changes flagged to contribution cap, but Labor will remove the ability to use the catch-up provisions to carry-forward your unused concessional contribution cap. Labor will also seek to reverse the recent change in rules in relation to personal super contribution deductions, disallowing a deduction for those who earn more than 10% of their income from salary and wages. |
| Non-concessional contributions | Cap of $100,000 on annual contributions for those with a total superannuation balance under $1.6 million. Bring-forward provisions can apply to those under 65, allowing up to $300,000 to be contributed in a single year. There is a progressive phase-out as the member's total superannuation balance approaches $1.6 million, reducing the amount of carry-forward contributions allowed. |
Reduce the annual non-concessional contribution cap to $75,000, with a resulting reduction in the bring-forward cap to $225,000. Access to the bring-forward provisions will remain the same, related to age and the member's total superannuation balance in relation to the $1.6 million cap. |
| Division 293 tax | This tax is currently paid as an extra 15% tax on contributions for those whose taxable income is above $250,000. You can pay this tax from your own funds or have the superannuation fund pay the ATO on your behalf. | The 15% tax will apply with a reduced threshold, so it will be paid by those with taxable income above $200,000 rather than $250,000. |
| SMSF limited recourse borrowing | SMSFs can borrow to purchase assets in limited circumstances and with strict rules around borrowings and the types of assets that can be purchased. | Limited recourse borrowing will no longer be allowed in superannuation funds, though funds with existing borrowings will be allowed to retain them and continue to repay them as normal. |
| Franking credits | Credits on franked dividends are available to be offset against tax payable, with any excess franking credits paid to individual and SMSF taxpayers as a cash refund. | Credits on franked dividends will still be available to be offset against tax payable, but any excess franking credits will no longer be paid as a cash refund. |
| Capital gains tax | Capital gains tax is paid at marginal rates for individuals, with a 50% discount applying if an asset has been held for at least 12 months prior to disposal. | Capital gains tax will still be paid at marginal tax rates for individuals, but the 50% discount will drop to 25% for assets purchased from 1 January 2020. |
| Family trust income | Income from family/discretionary trusts is taxed in the hands of the beneficiaries of the income, at whichever tax rate is applicable to the beneficiaries. | Flat 30% tax rate to apply to income from discretionary trusts, taxed at the trust level (similar to the way companies are taxed). |
| Negative gearing | Taxpayers can claim expenses related to earning income from residential property. If the expenses exceed the income from the property, that expense deduction can be applied to the taxpayer's other income, to reduce their overall taxable income. | Taxpayers can still claim expenses related to earning income from residential property. However, if the property is purchased on or after 1 January 2020 and the expenses incurred exceed the income earned from the property, the excess deduction cannot be applied against other income to reduce overall taxable income. |
| Deductions relating to tax affairs | Currently taxpayers can claim a deduction for expenses incurred in managing their tax affairs. This can include advice in relation to the tax impact of investments or business structures and the preparation of tax returns. | The maximum that taxpayers will be able to claim for expenses relating to their tax affairs will be $3,000 p.a. |
| Temporary budget repair levy | This was a 2% extra levy applied to taxpayers with taxable incomes above $180,000. It was introduced as a temporary measure from 2015 to 2017. | The levy will be reinstated at 2% with no indication of whether this will be a temporary or permanent increase. |
| Tax brackets for individuals | While not due to apply until 2024-25, the Liberals are proposing to remove the 37% tax rate (for income between $90,000 - $180,000) from the marginal tax rate table, replacing it with a marginal rate of 30% for income between $45,000 - $200,000. | Labor will retain the 37% tax rate on income between $90,000 - $180,000. |
This table only looks at the policies of the two major parties, but the impact of the Greens and other independents in the House of Representatives and the Senate could well result in changes to the above plans, no matter who wins on 18th May.
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