As the nation heads to the polls this Saturday to elect Australia’s next Federal Government JULIA HARTMAN, the Founder of BAN TACS – National Accountants Group provides a comparison of the pending changes property investors face from both sides of Government.
Here is a comparison between the two major parties on the tax issues likely to affect property investors.
For people earning less than $48,000 a year Labor will provide a tax reduction of up to $95 per year. On the other end of the scale Labor will reintroduce the deficit levy of 2% for people earning over $180,000 a year.
For everyone in between the two parties are offering the same for the next 3 years. Then the LNP have grand plans, but let’s save that discussion until the next election.
If your plan is to finish work, then in the following financial years sell down your properties while you have no other income and reducing the tax on your capital gain by contributing to superannuation the LNP have made this easier.
Currently, if you have reached 65 years of age you cannot contribute to superannuation unless you pass a work test of 40 hours work in a 30 day period. The LNP propose to increase this to 67 years of age from 1st July 2020. The cut off age for the bringing forward of 2 years non concessional (non-deductible) contributions will also be increased to 67.
Bringing forward your non-deductible/non concessional contributions means increasing your annual $100,000 cap to $300,000, for one year, providing you do not make any non-deductible contributions for the following two years. It should be noted that Labor intend to reduce this cap from $100,00 to $75,000.
Labor will stop wage earners being able to claim a tax deduction for their own superannuation contributions, they will be back to having to rely on the goodwill of their employer if they want to put more then the super guarantee into superannuation.
Labor will also abolish the ability to ‘catch up’ the unused portion of your deductible superannuation contributions cap which is up to $25,000 a year.
For example, if you take 3 years off work to look after family members and do not make any superannuation contributions during that period, in the third year you could sell a property, contribute $75,000 to superannuation and claim it all as a tax deduction against the capital gain.
Is your retirement strategy to continue to hold your properties and live off the rent in retirement? Labor intends to tax trust distributions at a minimum tax rate of 30%. No tax-free threshold, seniors’ tax offset, etc., just a flat 30% tax rate across the board.
You are going to need a lot more retirement savings if you hold your properties in a trust.
If Labor are elected the loss made on an investment property purchased after 31st December 2019 will no longer be able to be offset against other income unless it is a brand-new property.
This is not quite as bad for investors who already have a positively geared property in their name, as they will be able to offset the losses from one property against the profits from another property. Initial information from Labor stated that losses not offset could only be used to reduce the capital gain on the property but there has since been conflicting reports from Chris Bowen’s office.
Labor also propose to reduce the Capital Gains Tax discount to 25% for properties purchased after 31st December 2019.
If you are thinking of buying a property in a Self Managed Superannuation Fund Labor intends to remove the ability for these funds to borrow money so you will need to have the full amount sitting in superannuation.
If you have any questions or need clarification on any aspect please use the comments box below or call our office on 1300 888 299 to discuss the matter further.
Julia Hartman is the founder of the BAN TACS National Accountants Group which has offices on the east and south coast of Australia, from Mackay to Adelaide. You can visit Julia’s website to learn more or ask Julia a question by going to her online forum.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.