No Images? Click here VETERINARY NEWSLETTER February 2019 The Impact of Labor's Taxation PoliciesThe Late Senator Walsh The Impact of Labor’s Taxation Policies
Surplus Imputation Credits Tax – turns out to be a tax on low-income widows! The result has been that it is far from being a policy which takes from the rich as Mr Shorten and Mr Bowen have claimed. Analysis by Professor Sinclair Davidson of RMIT and subsequent inquiries of the PBO, have revealed that the group most affected by this policy are retirees over 70, with below average incomes. The majority of these are women, because women outlive men, and as a result widows are heavily represented. So there we have it, the main group affected are low-income widows over 70 years of age! Contrary to Labors original and continuing pronouncements, the policy of confiscating surplus imputation credits will have zero effect on the rich whose marginal and average tax rates are above the 30 percent company tax rate on large companies. With respect to superannuation funds, the funds which are in accumulation phase pre-retirement can easily plan their investment strategy to neutralise the impact of Labor’s policy and, for very large funds in retirement with substantial accumulation accounts over and above their pension accounts, can also can easily structure themselves. People such as dentists and veterinarians who have their practice premises inside superannuation funds, which pay unfranked rent, will also easily limit the impact of the policy. Negative Gearing
Claims that negative gearing is costly to tax revenue are bunkum. For every expense claimed by a landlord there is a party on the other side of the transaction who either makes tax reportable income, as in bank lenders, real estate property managers, tradesmen who carry out repairs, insurers etc. or a government body collecting a tax such as land tax paid to state governments or rates paid to municipal authorities. In this sense the policy is tax neutral – but as residential tenants cannot claim a tax deduction for their rent but landlords must declare the rent received, the government actually makes a profit on so-called negative gearing of residential rental property! Those who claim a revenue loss to the government only look at one side of the tax ledger. Senior public servants advising government, state and federal, long ago realised that the cheapest way to avoid having to fund a vast amount of public housing is to have negative gearing and to encourage the private sector to provide it. For example the Commonwealth government sold off Defence housing to private investors and arranged to have the properties rented to Defence personnel. Negative gearing of rental housing is not something that the rich indulge in. The rich are too smart to invest in a sector which provides poor returns, after all the unavoidable costs are met. It is well-publicised that the groups most likely to invest in residential rental property are school teachers, nurses and police. This may be a cultural outcome within those professions but it is assisted by the fact banks like to lend to persons in professions which they regard as secure. The problem The impact of the policy is that investors are likely to be deterred from purchasing new properties as they are guaranteed a fall in price because subsequent buyers will not be able to negatively gear. This, together with other factors such as more rigorous credit assessment by bank lenders has caused a collapse in the value of residential rental properties particularly in Melbourne and Sydney. High rise apartment sales are particularly hard hit. Capital Gains - Tax on Inflation! Even with moderate inflation an asset held for say 20 years with annual CPI growth being 2.5 percent, roughly within the Reserve Bank’s target range, would mean that the index based cost of that property would grow by 64 percent! When Treasurer Costello, as a result of the Ralph Review of Business Taxation, changed the formula to replace the Keating method with simply taxing 50 percent of the capital gain, without the benefit of the five year averaging formula, the effective result was that capital gains tax on long-held investment properties actually increased in many cases! This fact was missed by most of the financial press. The Labor Party are now indicating that, if elected, they will increase the amount of the capital gain which is taxable, from 50 percent to 75 percent. However, as the above example shows, on long-held gains, this would effectively take capital gains tax well into inflation territory i.e. a tax on inflation rather than a tax on real gains. Is it any wonder that there are tremors in the property market? Personally, I would much prefer a total reversion to the Keating model on capital gains tax as it was fair to people with both long-term and short-term gains by taxing them on the real gain above the indexed base cost of an asset. Proposals for Trust Distributions Best wishes to all Vets, Graham Middleton Disclaimer The information contained herein is of a general nature and no specific action should be taken without individual advice. Speak with Synstrat staff as appropriate. Prepared by Synstrat Management Pty Ltd for clients of the Synstrat Group. Synstrat Management Pty Ltd is the holder of Australian Financial Services Licence number 227169. The Synstrat Group consists of two companies, Synstrat Accountinvg Pty Ltd and Synstrat Management Pty Ltd. The two companies are owned in parallel by the Synstrat partners who are directors of both companies.
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