16 Mar Proposed Tax Policies: Things You Should Know About!
With a federal election on the horizon, I thought it would be timely to explain some of the proposed Labor tax policies in simple English. I have had so many conversations with many of you as to what’s going to occur that I wanted to keep you informed as to my reading of the policy detail.
This happens to be one of the ‘hot potatoes’ of Labor policy. Currently, an individual or a self-managed superfund (SMSF) can obtain a refund on franking credits. That is, if the tax payable is less than the franking credits received from dividends, the taxpayer is refunded the difference.
What won’t change – Franking credits will still be able to be used to reduce tax payable.
What will change – The franking credit amount will be treated as a non-refundable tax offset. That is, if the amount of tax you pay is less than the franking credits, you will no longer be refunded the difference. This net amount is just ‘lost’.
Another Labor ‘hot potato’. Currently, if rental property expenses are more than the rents received, an individual’s taxable income is reduced by this amount.
What won’t change – Owners of existing rental properties will be able to continue accessing the negative gearing provisions and obtain a deduction for the rental property loss.
What will change – For properties purchased after a date to be determined (sometime after the election if Labor win), owners will not be able to obtain a tax deduction for rental property losses. If, however, an investment is made in a newly constructed property, negative gearing will still apply.
Capital Gains Tax On Investments
Currently, on assets held for greater than 12 months, any capital gain made on disposal of the investment is reduced by a 50% discount.
What won’t change – A 50% deduction in capital gain will apply for existing investments. This policy will not affect SMSFs and it will not affect the assets of small businesses.
What will change – Assets purchased after a yet to be determined date (post-election) will now only be able to obtain a 25% reduction.
No Response Yet From The LNP
To date, the LNP have not yet detailed any tax policies besides tax cuts for individuals and small business, or at least, none that I could find as at the time of writing.
What All This Means To You
For clients who have existing rental properties, a change of government is not going to have any effect on your ability to claim rental property losses. Further, it won’t have any effect if you decide to sell that property and make a capital gain in the future.
However, the franking credits policy is certainly going to affect SMSFs and individuals who are used to obtaining refunds from franking credits.
Please note that the purpose of this email is not to sway your voting in any way! Knowing where you stand in your own personal circumstances is always useful and it may or may not influence who you ultimately cast your vote for. There are plenty of news articles to scan on the net arguing the pro’s and con’s of the policies.
Wishing you all a healthy, happy and prosperous 2019!