written by Robert Deutsch CTA *

Labor's recent announcement that, if elected it will move to eliminate refunds of excess imputation credits with effect from 1 July 2019, adds yet another layer to the differentiation between the Coalition and Labor on tax policy.

The next federal election is looming as one of the most important elections in recent times, particularly having regard to the differences between the two alternatives on tax policy.

The Coalition supports the following:

1. A reduced corporate tax rate for all companies, eventually with a target rate of 25%
2. A likely reduction in personal tax rates, particularly for income levels up to $100,000 (the exact details are unknown, but should become clearer after the 8 May budget)
3. Apart from the already announced increase to the Medicare levy to 2.5%, no further change in current arrangements
4. No change to current arrangements regarding negative gearing of investment property
5. No change to the capital gains tax (CGT) discount, which currently sits at 50% for individuals
6. No change to the current arrangements regarding trust distributions from discretionary trusts
7. No change to the current arrangements regarding imputation – in particular, full refund of excess imputation credits
8. No changes in relation to depreciation – the $20,000 immediate asset write-off available to 30 June 2018 is not currently being extended by the Coalition. That may change in the 8 May budget.

By contrast the Labor policies are as follows:

1. A restoration of the company tax rate to the full 30%, coupled with a possible lower rate for smaller corporate entities
2. Higher personal tax rate rates at the top end and lower personal tax rates at the lower end
3. An increase in the Medicare levy to 2.5% coupled with a more generous Medicare levy arrangement for lower-paid workers than that currently available
4. A prohibition on negatively gearing investment properties other than newly built investment properties
5. A halving of the CGT discount to 25% for individuals
6. A minimum tax of 30% on all distributions from discretionary trusts
7. A denial of any refund in respect of excess imputation credits
8. A new deduction (the Australian Investment Guarantee) which will enable a 20% deduction in respect of the purchase of any new eligible asset worth more than $20,000.

Clearly these represent significant differences in tax policy and, with the possibility of at least 6 months and maybe longer to go before the next election, the list may actually get even longer.

Rarely in recent history have so many differences on so many important tax fronts been evident. It should make for some very interesting argument in the run-up to the next Federal election.

* Robert Deutsch is The Tax Institute’s Senior Tax Counsel. This article was first published in the 16 March 2018 issue of the Institute’s member-only TaxVine newsletter.