There are two ways that tax practitioners can look at the election result — and these have nothing to do with the shades of blue or red that may have tinged your voting intentions in the lead up to May 18. During the election campaign, with now de-bunked polls asserting a change of government, some tax agents probably thought they were looking down the barrel of a great deal of restructuring for their clients, and the relevant advice that goes along with it.
The changes would have required practitioners to pour over the new legislation that enacted these changes, so it’s likely that some will have breathed a sigh of relief that they do not need to undertake this work. The other side to this coin however is that others will be disappointed at the lost fees connected to advising their clients on these issues.
Should the Opposition’s policy agenda have become a reality, the legislation to come to grips with would have included:
- abolishing negative gearing on housing that was not new
- abolishing the cash refund of excess franking credits
- introducing a 30% tax applied to trust beneficiaries
- reducing the general CGT discount to 25%
- removing the carry forward concessional contribution rules
- reinstituting the budget levy to bring the highest marginal tax rate to 49%, and
- limiting the tax deduction for taxation services to $3,000.
As mentioned, these tasks are now off the table — but so too are the client fee revenues that would have been generated.
Still on the horizon
Tax agents now need to focus on the policy agenda that was mainly announced in the federal budget on 2 April. This includes:
- increasing the low and middle income tax offset (LMITO) to a maximum offset of $1,080 for the years ending 30 June 2019, 2020, 2021 and 2022. Should legislation pass in time, tax agents may need to ready themselves for an influx of individuals wanting their tax return lodged early so that they can gain access to the refund (note that the ATO said it will automatically amend assessments, with no requirement for the taxpayer to lodge another tax return or seek an amendment).
- increasing the instant asset write off threshold to $30,000 (this law has already been enacted)
- removing the work test for people aged 65 and 66 from 1 July 2020.
- extending the eligibility for bring forward contributions to those aged 65 and 66 from 1 July 2020.
- increasing the age for spouse contributions from 69 to 74, and
- uncertainty that the government may again try to extend the maximum number of members in an SMSF to six.
Tax agents will also be closely watching the proposed changes to Division 7A. These are now to apply from 1 July 2020, although it is likely that the announced changes will not be enacted exactly as proposed. There is still a long way to go before we know what the “new” Division 7A will look like.
Now that the Opposition’s proposal to put a 30% tax on the distribution from trusts is dead, perhaps the government will finally get around to completing its review of the taxation of trusts. This much-needed review has dragged on and virtually come to a standstill. Perhaps, in the course of this Parliament, the government may finally decide to deal with this thorny issue.
Tax agents will also need to be alert to any new changes that the re-instated government may announce. It is generally the way that more unpalatable tax changes are introduced earlier in a parliamentary term than later. So, the challenges for tax agents will remain.
* John Jeffreys is Tax & Super Australia’s Tax Counsel