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New Government’s Likely Tax and Super Changes

With a new Coalition government in Canberra, several aspects of the economic environment, both for businesses big and small as well as for individuals, look likely to change in the near future.

While specific details are still to be formulated and released, there are several known policies that the Coalition have outlined and that are likely to become a part of our collective tax and super landscape.

Taxation changes

Company tax rate reduction

One of the key planks of the Coalition tax platform is the promise of a 1.5% cut to the company tax rate, bringing it down to 28.5%, which will be effective from July 1, 2015.

The pledge also has a follow-on effect for small businesses however, as under the Coalition’s paid parental leave scheme bigger businesses would be required to pay a 1.5% levy to cover the cost. This leaves smaller concerns with the cut, but not the levy — although larger businesses will not pay any more tax than at present.

The new government’s paid parental leave scheme plans to offer 26 weeks at existing pay (up to a salary cap of $150,000) along with superannuation, and will be funded by the levy. Unlike the incumbent scheme, the Coalition aims to relieve businesses from acting as paymasters. Instead, every payment will be made through the government.

Car fringe benefits

The Coalition also pledged to ditch Labor’s proposed toughening of the FBT treatment of salary packaged cars which are leased for personal use. With the election result confirmed, this won’t go ahead.

Superannuation

Superannuation guarantee Removal of certain tax concessions

There are some plans that may have an adverse impact on small businesses.

The Coalition has pledged to wind back the increased asset write-off threshold, and get rid of the accelerated car depreciation rules as well. The rise in the instant asset write-off to $6,500 allowed a small business to immediately reduce its tax bill instead of spreading the write-off out over three years in a depreciation pool. This is likely to be wound back to $5,000 under Coalition plans.

The loss carry-back scheme is also on the Coalition’s chopping block. This was only legislated days before the end of the last financial year, and allows small businesses to “carry back” losses to offset past profits, giving them a tax refund up to a cap of $300,000 each year from tax previously paid.

Discontinuing the loss carry-back will give the Coalition $900 million over the four-year forward estimates, while discontinuing the instant asset tax write-off will give it $2.9 billion over the same period.

Other new government tax policies include the following:

  • Rescind the carbon tax, without changing the current income tax thresholds and the current pension and benefit fortnightly rates.
  • Rescind the Minerals Resource Rent Tax (mining tax).
  • Publish a white paper on tax reform (while ruling out any increase to the GST, although the consumption tax will still be part of the proposed review).

The major tweak regarding superannuation policy from the Coalition is a slower phase-in of the increase to the superannuation guarantee. From the 9.25% at present (it was 9% until July 1 this year), the previous government’s plan was to increase the compulsory super rate annually until it reached 12% by July 2019. This will now be delayed until July 2021.

Other new government superannuation policies include the following:

  • Develop an appropriate process to address all inadvertent breaches of the contribution caps where the taxpayer can show that their mistake was genuine and the error would result in a disproportionate penalty.
  • Revisit concessional contributions caps and incentives for low income earners, such as super co-contributions, once the government’s budget is back in a strong surplus.
  • Review the minimum payment rules relating to account based pensions to assess their adequacy and appropriateness.
  • Shift the job of administering superannuation from employers through having compulsory superannuation payments remitted directly to the Tax Office at the same time as employers remit their pay-as-you-go (PAYG) payments.

Will proposed super measures from the previous government be kept?

The new government’s plans for certain inherited superannuation measures that are yet to take effect are not yet known — although the Coalition has stated that it intends to make no unexpected detrimental changes to either taxation arrangements on super or other related regulatory arrangements.

Pension earnings over $100,000: It is as yet unclear what the new government plans for Labor’s proposal, announced last April, to tax at 15% from next July the now tax-exempt investment earnings of superannuation assets from which a pension is being paid to an individual where earnings attributable to the pension exceeds $100,000 for the year.

Income deeming rules: Another initiative from the previous government that is yet to take effect, and is not yet clear if it will, is a proposal to extend the “deeming rules” that currently apply to the Age Pension income test so they apply to new superannuation fund-based pensions.

Under present Age Pension rules, if you own financial investments such as shares and term deposits, and you plan to claim the Age Pension, part of the eligibility considerations includes the income from these investments.

Under the deeming rules, the government assumes financial assets are earning a certain amount of income, regardless of the income they actually earn. Deeming thereby works to reduce the extent that pension, benefit or allowance payments vary.

While nothing is set in concrete regarding the above, which are subject to review by the new government, we will keep you informed as details come to hand.

Other proposed measures

The Coalition’s superannuation policy document indicates however that it does not agree with the following changes that the outgoing government made during its term:

  • Lowering concessional contribution caps to $25,000 and freezing the indexation of the cap.
  • Reducing the maximum co-contribution to $500 and reducing the eligibility thresholds.
  • Introducing a new tax on superannuation for individuals earning more than $300,000.
  • The Coalition had also resolved to abandon the low income superannuation contribution (a $500 yearly government payment to the super funds of people earning less that $37,000) but there has been to date no further word on this.

We will let you know further news on these possible changes as information comes to hand.

Other commitments

Many small businesses will welcome the Coalition’s commitment for all government departments and agencies to pay small business suppliers on time within 30 days, and if the payment deadline is not met apply interest at the same rate as the “general interest charge” applied by the Tax Office to late tax payments.

Red tape: The Coalition has made regulation and red tape a big part of its pledge to small business. It has set a goal of saving $1 billion every year by eliminating unnecessary expenses, and has even stated that it would set aside two sitting days dedicated to getting rid of unnecessary regulation, and will link red tape reduction targets to government departmental performance.

Part of the red tape reduction push includes; having employers remit the super guarantee directly to the Tax Office with their regular PAYG payments, streamlining superannuation reporting, and encouraging the Tax Office to make greater use of technology to deal with small business queries.

Employer involvement in the new parental leave arrangements will be eliminated. Unlike the incumbent scheme, the Coalition aims to relieve businesses from acting as paymasters, with every payment instead made through the government. Also environmental regulations that are largely duplicated between state and federal levels will be erased.

Broadband network: The Coalition changed its policy on the national broadband network (NBN) earlier this year. Rather than oppose the project, the NBN roll-out under the Coalition will continue, but with a significant change. The Coalition version of the NBN does not favor a fiber-to-the-premises option, rather it will be fiber-to-the-node, with final connections made to your business (and your home) via the existing copper network. Businesses and individuals will be able to choose to connect their premises to the node with fiber, but it will cost – and the cost of this connection is still unknown.

Skills and education: A significant Coalition policy in this arena is a new HECS-style apprenticeship support scheme, which will cost $80 million. According to the proposals, apprentices will be able to borrow $20,000 under the scheme for tools and equipment, to be distributed across four years. Finishing the training triggers a discount. Other education policies include creating an infrastructure fund for schools (dependent on a budget surplus), along with appointing the Productivity Commission to conduct a review of the child care system.

While specific details are still to be formulated and released, there are several known policies that the Coalition have outlined and that are likely to become a part of our collective tax and super landscape.

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