How will the Election affect me?

Jun 20, 2016

While many of the tax policies of the two parties are similar, there are also several key differences. Below is a summary of how these policies may affect you:

BUSINESS OWNERS

Shared Policies

  • Cut the tax rate for small businesses earning under $2m in turnover from 28.5% to 27.5% for companies with a similar cut for businesses carried on in different types of entities.

Liberal Policy

  • Extend the afformentioned tax cut as well as accelerated depreciation to businesses earning under $10m in turnover initially with the turnover threshold increasing over time

Labor Policy

  • Labor are against any cuts to company tax other than small businesses with turnover under $2m (despite supporting them in the recent past).

How will it affect me?

Businesses with turnover over $2m will benefit under a Liberal Government. The rest of the community should benefit from the tax cuts through increased economic growth but whether this offsets the cost of the cuts is unknown.

FAMILIES

Liberal Policy (However these were not included in the recent budget so are unlikely to happen prior to July 2018)

  • Increase the rate of child care benefit, removing the $7,500 cap for the child care rebate for families earning less than $185,710 and increasing the cap on the child care rebate from $7,500 to $10,000 for families earning more than $185,710.
  • Introducing a work test for access to child care benefits.
  • Make various changes to Family Tax Benefits including removing FTB Part B for couple families when the youngest child reaches 13, decreasing the rate for single parents with children over 13, removing end of year supplements and increasing the rate of FTB Part A by $10 per fortnight

Labor Policy

  • From 1/1/17 increase the cap on the child care rebate from $7,500 to $10,000 and increase child care benefits by 15%.
  • Cut the Family Tax Benefit Part A supplement for families earning over $100,000 a year by half.

How will it affect me?

For those with children in child care the Liberal policy will deliver more but importantly the Labor policy would be implemented at least a year and a half earlier making the Labor policy more attractive for those currently using child care. The Liberal policy is also linked to cuts to Family Tax Benefits for single income families with children over 13 which has caused the child care proposals to be blocked in the senate in the past and may mean that the increase in child care support never passes.

Single income families with children over 13 will be worse off by as much as $3,000 per child under the Liberal policy.

RETIREES OR PLANNING FOR RETIREMENT

Shared Policy

Both parties plan on introducing a limit on the amount a person can benefit from the pension tax exemption in Super. Both policies will apply to balances over about $1.5m and will attract tax of 15% on earnings above that. The Liberal policy is based on a balance at the start of the pension of $1.6m while the Labor policy is based on exempting an earnings amount of $75,000. The Liberal policy will favour those who's balance grows over time and conversely hurt those who's balance decreases.

Liberal Policy

  • Removal of tax exemption on earnings supporting a Transition to Retirement Pension
  • Lifetime Cap on Non-Concessional Contributions of $500,000
  • Increased eligibility to make concessional contributions to super but caps decreased.
  • Increase in availability of Low Income Spouse Contribution Offset.
  • Extension of Low Income Super Offset

Labor Policy

  • Labor have not confirmed whether they support these measures but they have booked the budgeted savings from the measures and said that they wont change them unless they can make other changes to super that will create the same savings.

How will it affect me?

It seems there is little difference between the parties on super policy but there is more uncertainty with Labor as they may come up with something different to make the same amount of savings.

The additional super measures such as the lifetime cap seem harsh and unnecessary considering they are already proposing a $1.6m limit on the pension exemption. The new cap will prevent many people from reaching a $1.6m balance and will interfere with plans many have had in place for years for contributions to super. The cap could severely impact on some funds who have borrowed to purchase property in the fund and rely on additional contributions to make the repayments.

On the positive side the policy to relax the rules for making concessional contributions will enable more people to claim a tax deduction personally for super contributions. The biggest beneficiary of this change will be those between 65 and 75 who don't work but still earn enough investment income that they are taxed in their own name. Other winners are those who have a mix of business and employment income who have found it hard to claim a tax deduction for additional contributions or those with employers who would not set up a salary sacrifice arrangement for them.

INDIVIDUALS

Shared Policy

Increase the threshold for the 32.5% tax rate from $80,000 to $87,000.

Liberal Policy

  • Return the top tax rate to 45% as promised.
  • No changes to negative gearing.

Labor Policy

  • Extend the budget repair levy to make the top tax rate 47%
  • Prevent deductions against employment or business income for negatively geared properties purchased after 1/7/17 unless the property is newly constructed. Deductions can still be made against investment income or carried forward to reduce any future capital gain.
  • Reduction of the CGT discount from 50% to 25% for investments purchased after 1/7/17 excluding superannuation and small business assets.

How will it affect me?

Labor's negative gearing policy would hurt those who purchase an existing property with a loan and don't have enough other investment income to claim a deduction against.

The combination of Labor's negative gearing policy and CGT discount reduction is likely to have a negative impact on house prices post 1/7/17 through decreased investment demand.

Labor's reduction of the CGT discount will mean anyone who makes a capital gain on an investment (eg shares or property) purchased after 1/7/17, that they have held for more than 12 months, will pay tax on 75% of the gain rather than the current 50% of the gain.

Labor's policy to increase the top tax rate would cost a person earning $300,000 a year, $2,400 per year.