Contributed by Roelof van der Merwe, National Tax Director, Findex
Australia now truly finds itself in the middle of a “perfect storm” due to the imminent Federal election on 18 May 2019 and the impending income tax year end of 30 June 2019.
We know Parliament is currently dissolved and will only be re-constituted after the election. This begs the question whether there will be enough time before 30 June 2019 for:
- a new Parliament to introduce and pass new legislation (especially those proposals having an impact on the current 2019 income tax year such as the increase to the low-and-middle income tax offset and those proposals with a 1 July 2019 start date), and
- taxpayers to familiarise themselves with such new proposed legislation and organise their affairs in such a way to be prepared for new legislative changes currently proposed to apply from 1 July 2019.
As an example, the Labor party proposes to abolish cash refunds of excess imputation credits for individuals and trusts and to tax discretionary trust distributions at 30% from 1 July 2019. These tax proposals are quite contentious, and there is a lot of speculation (based on very limited information) about how these proposals are supposed to operate if they were to ever become law.
With all this uncertainty, the following questions spring to mind:
- If the Labor party were to become the next Australian Government, would there be enough time for draft legislation to pass through Parliament before 30 June 2019 to allow taxpayers (and their tax advisers) sufficient time to digest the precise details of these proposals to familiarise themselves with the new measures and organise their affairs in such a way to be best prepared for the impending changes?
- What if there is a hung Parliament and what influence will the crossbenchers have on passing legislation?
- Do taxpayers understand the risks involved if they take action in anticipation of a proposed law change that does not eventuate?
For example, with the benefit of hindsight, Australian expats who sold their dwellings before 11 April 2019 (ie the date the election was called and thereby causing unenacted Bills to lapse), would probably not have sold their dwellings had they known the Bill before Parliament proposing to abolish the main residence exemption for non-residents selling their dwellings on or after 1 July 2019, would not become law.
What are the certainties for 30 June 2019 tax planning?
Regardless of these uncertainties, there are also a number of certainties (ie enacted law) that will be relevant for taxpayers and their 2019 year-end tax planning.
Set out following is a brief snapshot of some of the main issues, including:
- New tax issues relevant for the 2019 income tax year
- Tax proposals that are no longer going ahead (ie no longer relevant for 2019 income tax year) or have been postponed, and
- New tax laws applying from 1 July 2019.
Some of the main new tax issues (ie legislated issues) relevant for 2019 are set out in the following table:
|Main new tax issue relevant for 2019 income tax year||Description|
|Potentially easier for companies to use their losses||• New similar business test whereby companies should be able to use their losses if the current business is similar (ie. same assets, same activities, same identity and merely an organic development) to the former business|
|Increase & expand instant asset write-off||• Trifecta of tax deductions (ie thresholds of $20,000, $25,000 or $30,000) for small business entities (ie businesses with a turnover under $10m); or |
• $30,000 threshold tax deduction for medium-sized businesses (ie businesses with a turnover of $10m or more but less than $50m).
|Changes to small business CGT concessions||• More difficult to claim small business CGT concessions when selling shares in a company or interests in a trust on or after 8 February 2018|
|New GST withholding obligations on purchaser of new residential premises||• For sale contracts signed on or after 1 July 2018, purchasers of new residential premises must pay vendors a GST exclusive amount (and GST directly to ATO)|
Examples of proposals that are no longer going ahead:
- The proposal to abolish access to the main residence exemption for foreign individuals (ie non-tax residents of Australia) who sell their dwelling on or after 1 July 2019; and
- The proposal to provide a one-off 12-month superannuation guarantee amnesty period from 24 May 2018 to 23 May 2019 in respect of superannuation guarantee payments that were not made in the period from 1 July 1992 to 31 March 2018.
Furthermore, the proposal to make fundamental changes to Div 7A has been postponed to 1 July 2020.
New law has also been enacted whereby from 1 July 2019:
- Employers would only be able to claim deductions for payments to workers if they had met their PAYG withholding obligations for that payment (ie have withheld amounts from the payment before paying the worker and reported the withheld amount to the ATO).
- Road freight, IT and security providers would also be subject to the taxable payment reporting regime (ie data matching of information in certain industries of payments made to contractors).
In an ideal world, tax legislation should operate prospectively (ie only apply from a future date) to afford taxpayers enough time to familiarise themselves with the new measures and organise their affairs in such a way to be best prepared for the impending changes. Unfortunately, this is not always the case.
[This article was originally published in CCH Tax Week on 17 May 2019. Tax Week is included in various tax subscription services such as The Australian Federal Tax Reporter and CCH iKnow. CCH Tax Week is available for subscription in its own right. This article is an example of many practitioner articles published in Tax Week.]