Labor’s comprehensive election victory on Saturday night will result in the implementation of a range of new tax initiatives. This update provides a brief summary of some of Labor’s tax proposals.
There is no doubt that tax landscape is now certain to change. Evidence of this is already coming through with the Labor proposal to reverse the family trust election changes that received royal assent on 24 September 2007 and to abolish the office of the Inspector-General of Taxation.
Income tax cuts
Labor has proposed the following individual tax rate cuts, which differ from the Coalition’s campaign proposal slightly in that Labor will defer tax cuts proposed by the Coalition for those who earn more than $180,000 per year:
| Current |
By 2010-11 |
| Taxable income ($) |
Rate (%) |
Taxable income ($) |
Rate (%) |
| 0 - 6,000 |
0 |
0 - 6,000 |
0 |
| 6,001 - 30,000 |
15 |
6,001 - 37,000 |
15 |
| 30,001 - 75,000 |
30 |
37,001 - 80,000 |
30 |
| 75,001 - 150,000 |
40 |
80,001 - 180,000 |
37 |
| 150,001+ |
45 |
180,000+ |
45 |
Labor’s ‘aspirational goal’ is to reduce individual tax rates to the following by 2013-14:
| 2013-14 |
| Taxable income ($) |
Rate (%) |
| 0 - 6,000 |
0 |
| 6,001 - 37,000 |
15 |
| 37,001 - 180,000 |
30 |
| 180,000 + |
40 |
Other aspects of Labor’s tax plan include raising the low income tax offset from $11,000 to $16,000 by 2010-11 and then to $20,000 by 2012-13;
Reversal of family trust election changes made by the Coalition
Labor will reverse the changes to family trusts introduced by the Tax Laws Amendment (2007 Measures No 4) Act 2007 (Cth).
These measures included:
- the widening of the “family group” to include lineal descendants and former spouses, widows, widowers and step-children;
- allowing family trust and interposed entity elections to be made or revoked in certain very limited situations;
- not requiring an interposed entity election to be made where another trust has the same test individual; and
- allowing the test individual to be varied once subject to certain prerequisites.
Education rebate
A key feature of Labor’s tax plan is the introduction of its 50% education tax refund scheme. This will allow eligible parents to claim:
a 50 per cent refund every year for up to $750 of education expenses for each child attending primary school (maximum $375 per child, per year); and
a 50 per cent refund every year for up to $1,500 of education expenses for each child attending secondary school (maximum $750 per child, per year).
Therefore a typical family with a primary school aged child and a secondary school aged child would receive a tax refund of up to $1,125 per year.
All families who receive Family Tax Benefit (Part A) will be eligible for Labor’s new 50% tax refund for eligible education expenses.
Eligible expenses are for items that support a child during school and improve the quality of education a child receives. Eligible items will be defined as:
- laptops;
- home computer and associated costs;
- home internet connection;
- printers;
- education software; and
- school text books.
Child care rebate
From 1 July 2008, Labor will increase the Child Care Tax Rebate from 30% to 50% and will pay the rebate every 3 months instead of every 12 months. The maximum rebate amount will be lifted from $4,354 to $7,500 per child. Current eligibility requirements for the offset will remain in place.
Under Labor’s proposal, a typical family with one child using 40 hours of long day care each week would receive an extra $1,086 of assistance each year. The same family using 20 hours instead would receive an additional $498 of assistance.
Housing affordability tax credits
Labor will consider introducing tax credits for investors charging below market rent to Australian families. It will establish a National Rental Affordability Scheme aimed at creating 50,000 new rental properties across Australia.
Under the scheme, institutional investors (such as superannuation funds) who build new homes and rent them to low and middle income households at 20% below market rates will receive a $6,000 rental tax incentive per dwelling. Such investors will also benefit from at least $2,000 per year in direct or in kind financial support from State Governments.
It is expected that the scheme will pay approximately $600 million in tax credits to developers in building new stock and new supplies of affordable rental accommodation.
First Home Saver Accounts
Labor will create low-tax First Home Saver Accounts to assist first home buyers.
The accounts will operate in a similar manner to superannuation accounts, allowing aspiring home-buyers to make contributions to their home saver accounts at a low tax-rate. Withdrawals will only be permitted for the purchase of an eligible first home and will be tax-free.
The main features of the scheme include the following:
- anyone over 18 who complies with the eligibility criteria for the First Home Owners Grant can open an account;
- there is a minimum savings period of 4 years before a withdrawal from the account can be made; and
- a $10,000 indexed cap applies to total contributions made each year. The first $5,000 deposited by account-holders may be made from pre-tax income and is taxed at 15%, while an additional $5,000 per year can be contributed from after-tax income.
Like superannuation, contributions made from pre-tax income will be subject to a 15% contributions tax. After-tax contributions can be made tax free. The headline tax rate for earnings will be the same as for superannuation cash earnings (ie 15%).
Introduction of a ‘BAS Easy’ option for small business
Small businesses with an annual turnover of less than $2 million will be eligible to select Labor’s BAS Easy option when filing their returns. Under BAS Easy, small businesses are given the choice between two methods, known as the business norms method and the snapshot method.
Under the business norms method, the ATO issues a business norm for each category of business, which a small business then applies to sales and/or purchases.
Under the snapshot method, a business takes 2 snapshots per year of their GST sales and input tax credits. Each snapshot covers a 4 week period. The 2 snapshots are averaged and the resulting ratio of input tax credits to GST is applied to all other periods.
Further features of BAS Easy include removing the requirement of annual reconciliation and limiting the auditing powers of the ATO to cases where a taxpayer is suspected of fraudulent activity.
Reduction of withholding tax on distributions
From 1 July 2008, Labor has stated that it will reduce withholding tax on distributions from Australian managed funds to non-residents from 30% to 15%. The regime will apply to the Australian-sourced net taxable income of the trusts and the need to lodge a tax return and claim debt as a deduction will be abolished.
Changes to superannuation
Labor has stated that it will:
- ensure that the 9% Super Guarantee contribution is based on pre-salary-sacrifice income;
- consider expanding the super co-contribution scheme by lifting the cap or reducing the means test; and
- implement automatic consolidation of inactive lost superannuation accounts by using the TFN to automatically transfer lost accounts into the most recent, active account.
Abolishing the role of Inspector-General of Taxation
As part of a range of initiatives aimed at reducing tax-related expenditure, Labor will abolish the role of Inspector-General of Taxation.
Water tax credit
In a plan designed to secure the water supplies of Australia’s major cities, Labor will fund a 10% water tax credit, capped at $100 million per project, for approved desalination, water recycling and major storm water capture projects developed by the private sector, local governments, and State and Territory Governments.
Summary
Labor has proposed a number of tax initiatives affecting both individuals and businesses. It is important that taxpayers stay up to date with the latest tax developments as Labor begins implementing its proposed changes.