4 Feb 2019

Written by Modiesha Stephens, Senior Associate, Tax, Business & Estate Planning Law 

As we approach the next Federal election, both major parties have announced tax policies that will significantly change the Australian tax landscape.  Recent polls indicate that a Labor victory is almost inevitable. What tax changes should we expect if Labor emerges victorious in the upcoming election? 

In Part 1 of this series we examine Labor’s proposed changes to negative gearing and capital gains tax.

Negative Gearing

One of the cornerstones of Labor’s tax policy is their commitment to scaling back negative gearing. 

Negative gearing refers to a situation where an investor makes an investment (usually in property) which makes a loss in the short term (i.e. expenses associated with the investment such as interest on money borrowed to buy the property, management fees and maintenance costs etc exceed the rental income).  This loss can be deducted against the investor’s other income (usually salary and wage income) to reduce the tax they would otherwise have to pay on their other income.   

For example, say you earn $130,000 and you own a rental property; if your expenses for the property are $10,000 more than your rental income, you will be able to reduce your taxable income from $130,000 income to $120,000.  This means you will pay $3,700 less in tax.  However, bear in mind that although you pay less tax, you will still be out of pocket $6,300. 

Labor plans to limit negative gearing so that it is only available for investments made on newly constructed housing (subject to some grandfathering provisions discussed below).    

Under Labor’s policy, losses made on new investments in shares or established properties will not be able to be used to reduce the investor’s salary or wage income.  These losses can only be used to offset later taxable income on the investment income (i.e. income or capital gains from the shares/established property). This includes allowing the losses to be carried forward to offset any final capital gain made on the investment (e.g. on the eventual sale of the shares/established property).   

Importantly, Labor has confirmed that all investments (including investments in shares and established properties) made before Labor’s policy is implemented will not be affected by the restriction on negative gearing.  This means that you can continue to negatively gear existing investments; it also means that you can continue to negatively gear any investments in shares and established properties acquired between now and when Labor’s policy is implemented (likely to be no earlier than July 2019).  

Labor’s policy of grandfathering existing investments (i.e. ensuring that the new negative gearing rules do not apply to existing investments) is in line with Labor’s commitment to ensure that they will not implement any retrospective tax changes. 

CGT Discount

Labor also plans to halve the general capital gains tax discount from 50% to 25%. 

Under current Australian law, if an investor has held an investment for longer than 12 months they are only required to pay tax on 50% of any capital gain made when they sell that investment.  Under Labor’s policy this will be changed to require investors to pay tax on 75% of the capital gain.

Again, the new policy will only apply to investments made after Labor’s policy is implemented. In addition, this policy does not apply to:

  • investments made by superannuation funds; or
  • small business assets.

As the policy will only effect the general capital gains tax discount, other concessions which may apply to reduce the assessable capital gain (particularly the 50% discount under the small business CGT concessions) are not expected to be effected. 

In Part 2 of this series we examine Labor’s proposed changes to dividend imputation.  

We have experienced lawyers at HHG Legal Group who can assist you with tax and business related matters. Please contact Murray Thornhill, Director and Notary Public, Commercial Litigation on 1800 609 945 with your queries.

 

100 years of Supporting West Australians

"Always fast and thorough service. Thank you"

Sitka Pil

My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at McKinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Anne Hurley. She helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Anne"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO AltusQ Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Anne."

Jacques Taylor

"I highly recommend Daniel from HHG Legal Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker