With the new financial year approaching and a Labor government in power, we are looking at the tax, small business and other financial related policies that the ALP have released in order to get elected. We will look to link anything that needs to be done pronto with a business checklist to start the FY2023 on the right foot.
Taxation Generally
The ALP’s pre-election taxation policy commitments fell into three broad categories:
Additional funding to extend and boost Australian Taxation Office (ATO) review and audit programs
Comment: Taxpayers need to ensure compliance processes are in place, with a stronger digital base
New measures targeting large multinationals, including tax transparency requirements;
Comment: Targeting the big end of town
Changes to the taxation of certain electric and low emission vehicles
Comment: Dates and amounts not yet specified
Tax Relief
The already legislated “Stage 3 tax cuts” from the previous government are locked in. Labor has not announced any proposals to reverse these changes
From July 1, 2024, the 32.5 per cent marginal tax rate will be cut to 30 per cent for everyone earning between $45,000 and $200,000 - effectively making one big tax bracket.
The move means a potential gain of $1125 per year for an individual on $90,000, rising to $9075 per year for a person on $200,000 or more [as per ALP website]
The abolition of the Low- and Middle-Income Tax Offset is also locked in, meaning those who currently receive it will effectively notice a tax increase when they lodge their 2023 returns.
This could be a rise of up to $1500 for those entitled to the full offset.
Comment: The previous government could have been seen as giving with one hand and taking with the other.
Labor is not expected to bring in any changes to negative gearing or any other taxes on investment property in its first term
Comment: But watch this space. Any “negative” changes are likely to increase rents
The general 50 per cent discount for Capital Gains Tax remains.
The instant asset write-off for businesses with annual turnover below $500 million remains in place until 30 June 2023
Small Business
Labor’s Better Deal for Small Business [straight from the website] will:
Guarantee that an Albanese Labor Government will consider the specific needs of small businesses in times of crisis, giving the confidence and certainty to grow and plan for the future. Labor will work closely with states, territories, industry groups and communities to end the uncertainty that surrounds when and the extent of support small businesses are able to access in a crisis.
Comment: Sounds good, but no real rubber on the road yet.
Ensure small businesses are paid on time to sustain growth across the economy with a mechanism to ensure payment within 30 days. The current average contract payment time sits at 37 days – well above the 30-day benchmark.
Comment: Feels good, but no rules of the road, nor timing
Make unfair contract terms illegal so small businesses can negotiate fairer agreements with large partners.
Comment: Gallant, but we still want big business to deal with small business
Drive a genuine collaboration with small businesses and government to reduce the time small businesses spend doing taxes, cut paperwork and target support. Eight out of 10 small businesses find government regulation overly complex.
Comment: A commonly used promise, one that will be interesting to monitor moving forward.
Draw on Labor’s history of working with unions, workers and industry to deliver better outcomes with settings that are simpler, more accessible, and fair.
Comment: Another one to monitor, as Labor looks to return to its roots as a champion of the working class
Reduce small business transaction costs at the point of payment with a clear timeline for implementing least cost routing or similar. Small businesses are disproportionately impacted by higher transaction fees that eat into profits - around $804 million a year.
Comment: This will be terrific, but when will it happen and what investment will small business need to make?
Superannuation
The ALP can’t stop wanting to fiddle with superannuation
Superannuation pension accounts to be taxed where the member’s taxable earnings are above $75,000. All super pension earnings are currently exempt from tax. The $75,000 as determined by the ALP is designed to only affect superannuation account holders with balances in excess of $1.5 million.
Comment: Likely to commence with effect from 1 July 2022
Labor will remove the 10% tax offset on defined benefit pension income above $75,000 per year.
Comment: Likely to commence with effect from 1 July 2022, but only affects defined benefit funds
Taxpayers who earn more than $250,000 a year, based on the special definition of adjusted taxable income, will pay an extra 15% tax on super contributions (up to the taxpayer’s concessional cap). This will increase the tax bill on concessional contributions to 30% for each dollar contributed. Currently those taxpayers who earn $300,000 or greater a year pay 30% on concessional contributions.
Comment: A bit more means testing of the “fat cats”
First Home Buyers
‘Help to Buy’
The plan is for the government to become
an equity partner in 10,000 homes a year,
for up to 40% of the cost of a new home, or 30% of the cost of an existing home.
but with a cap on the overall value of the property, in accordance with its location e.g., the cap for Sydney is $950,000.
You will be eligible for the scheme if you:
Are an Australian citizen of at least 18 years of age
Earn $90,000 or less per annum for individuals, or $120,000 or less per annum for couples
Live in the purchased home as your principal place of residence
Do not own any other land or property – in Australia or overseas
Have saved the required minimum two per cent deposit of the home price and qualify (and can finance) the remainder of the purchase through a standard home loan with a participating lender
Pay for any associated purchase costs like stamp duty, legal and bank fees.
With homebuyers being responsible for ongoing property costs like rates, strata and any other bills.
During the loan period, the homebuyer can also buy an additional stake in the home, when they are able to do so.
The minimum stake that a homebuyer can opt to purchase at any one time is five per cent.
If the homebuyer’s income exceeds the Help to Buy annual income threshold for two consecutive years, they will be required to repay the government’s financial contribution in part or whole as their circumstances permit.
Comment:
There are only 10,000 places per annum,
Why is the couples’ threshold (at $120,000) less than the nominal level of two individuals (i.e., $90,000 x 2 = $180,000)? and,
There is no incentive for the participants to become more financially successful i.e., stay below the income level or lose the assistance
Multinational Taxation
Labor will tackle multinational tax avoidance in four ways.
Supporting the OECD's Two-Pillar Solution for a global 15 per cent minimum tax and ensuring some of the profits of the largest multinationals - particularly digital firms - are taxed where the products or services are sold.
Limiting debt-related deductions by multinationals at 30 per cent of profits, consistent with the OECD's recommended approach, while maintaining the arm's length test and the worldwide gearing ratio.
Limiting the ability for multinationals to abuse Australia's tax treaties when holding intellectual property in tax havens.
Introducing transparency measures including reporting requirements on tax information, beneficial ownership, tax haven exposure and in relation to government tenders.
Comment: These actions are all generally in line with the OECD recommendations
The Economy in General
From the ALP election website……
“A better future relies on a stronger, broader, more inclusive and more sustainable economy powered by cleaner and cheaper energy,
Comment: How is this going at the moment
a better-trained workforce with higher participation
key investments in the care economy,
key investments in the digital economy and
a future “made in Australia.”
This will give Australians the best chance to get ahead.
Comment: But not too far ahead if you are part of the “Help to Buy” First Home Buyers Scheme
Labor will do this by:
Prioritising smart, responsible and targeted investments that deliver economic value.
Comment: No details of these yet e.g., NBN 2.0
Dealing with the Governments wasteful spending including by trimming spending on contractors, consultants and labour hire in the public service.
Comment: All Governments are seen as wasteful in the eyes of their opponents. How the ALP will ‘deal’ with the changes is yet to be determined.
Conducting a waste and rorts audit.
Comment: To be expected, highly critical on former Government spending during campaigning.
Closing down loopholes which allow multinationals to avoid their tax obligations to Australians.
Comment: A common proposal, however easier said than done
Improve the quality of spending to generate a budget position that will allow us to
reduce debt as a share of the economy over time,
while delivering real outcomes for Australians in essential areas like Medicare, aged care and childcare.
Comment: We need to able to measure what “quality of spending” and “real outcomes” mean. There is no commentary on the budget blowout and controls to be enacted re the NDIS
Super Guarantee Changes
Eligibility
New eligibility criteria states that:
Employees can receive SG, regardless of how much they earn, as the $450 per month eligibility threshold is being removed.
Super only needs to be paid to employees that are under 18 when the employee works more than 30 hours in a week.
Comment: Effective from 1 July 2022
Rate
On 1 July 2022, the SG rate will increase from 10% to 10.5%. Employers will need to use the new rate to calculate super on payments made to employees on or after 1 July 2022. This includes some or all the pay period for work done before 1 July 2022. The SG is set to increase to 12% by 2025.
POSTSCRIPT
An article in the Australian Financial Review on 9 June 2022 by John Kehoe and Ronald Mizzen, touches on some darker thinking being done for the new government
Tax breaks for superannuation, housing, trusts, stocks and private health insurance are costing the federal government budget billions of dollars a year, according to a list compiled by Treasury.
Treasury Secretary Steven Kennedy said on Wednesday the $80 billion budget deficit and $1 trillion debt should be fixed by controlling spending on aged care and disability, while also examining potential revenue measures that clamp down on “tax planning” by individuals and businesses
The article makes comment of the following things
High wealth individuals should lose their superannuation concessions.
The stage-three income tax cuts for high earners are too expensive
More revenue was required to support the larger role of government in the National Disability Insurance Scheme, aged care, childcare and parental leave….that ultimately has to mean a higher GST
The big gains from tax reform are at the state level and using the revenue from a tax switch to induce reform of state taxes, e.g. payroll tax and stamp duty, leading to an expansion of other Commonwealth tax bases