The shock announcement in late November that the 2019 Australian budget will be brought forward to April 2nd from its usual historical spot of the second Tuesday in May, was a clear sign by Prime Minister Scott Morrison that he is getting ready for a battle at election time, which will likely be the 11th or 18th of May 2019. The coalition is likely going to present an “election” style budget with little to no shock value and potentially a few welcomed surprises with the view to be re-elected for another term. Further strong results from the Mid-Year Economic and Fiscal Outlook (MYEFO) which shows collections ahead by $8.3b has provided the treasurer Josh Frydenberg with much needed confidence however there is no doubt that this election will be a tough one.
On the other side of the floor, Labor have already announced that if they are elected in at the next election, they will be making changes to the following legislation at a yet to be determined date.
Negative Gearing – Individual tax payers only: Limiting the ability to deduct a negative gearing loss from property against salary and wages to only newly constructed housing – thus quarantining property losses on newly acquired second hand properties to future property gains. This also extends to Australian shares and unit trusts and we understand this will however be grandfathered for existing properties held up to when the announcement is enacted. As an expatriate this will affect you if you acquire any second hand investment properties after this time this may have a significant cash flow impact for those individuals relying on negative gearing to offset other income tax. It is likely that the quarantined losses (i.e. if you cannot claim a tax deduction for them) could be adjusted later to reduce the future Capital Gains Tax impact on sale.
Capital Gains Tax Discount: Currently if you hold a capital asset whilst you are Australian tax resident for 12 months or more, you receive a 50% capital gains tax discount on the gross gain during this time. Labor are proposing to reduce this to 25% however excluding small business assets, and those assets within Superannuation. This will also be grandfathered up to the date when the announcement is enacted. As an expatriate, currently you miss out on the capital gains tax discount for the period that you hold Australian assets and are a non-resident of Australia for tax purposes which is not proposed to change.
Superannuation: Changes are proposed to lower the current annual non-concessional (after tax) contributions cap from $100,000 to $75,000, as well as lower the Division 293 threshold from $250,000 to $200,000 which is a provision that levies an additional 15% tax on superannuation contributions (from 15% to 30%) for adjusted taxable incomes, currently over $250,000 (proposed to be reduced to $200,000). Division 293 is less likely to affect an expatriate due to limited Australian taxable income however the non-concessional changes will have to be taken into consideration with superannuation contribution strategies. Please note Non-Concessional Contributions have strict conditions on when they can be made so you need to seek advice before making Non-Concessional Contributions. For example, if you have a Total Superannuation Balance of more than $1.6m at the most recent 30 June date, you are ineligible to make further Non-Concessional Contributions.
Discretionary Trusts: Proposed from 1 July 2019 – Labor would introduce a standard minimum 30% tax rate for discretionary trust distributions to mature beneficiaries over age 18 which would be passed down to the beneficiary. In circumstances where the minimum tax rate on discretionary trust distributions is lower than what would be paid under the normal marginal tax scales, the beneficiary would then be entitled to a refund of franking credits until such time as the proposed removal of franking credit refund changes are enacted as described below hence setting a minimum tax rate of 30%.
Removal of Franking Credit Refunds: Proposed from 1st of July 2019, imputation credits (or franking credits) for individuals and superannuation funds will no longer be a refundable tax offset. This means that imputation credits can be used to reduce tax payments however any excess will no longer be refunded. Currently for non-Australian tax residents who receive a fully franked Australian dividend, for tax purposes they “keep the cash, and loose the franking credit” so there is no change in this respect however this does result in a change in future retirement cashflows both in and out of Superannuation. This could also influence investors who may choose to invest in international equities and non-dividend paying Australian equities as a result.
Principal Place of Residence Exemption – for Capital Gains Tax
Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures No. 2) Bill 2018 has been stuck in the Senate since 19th of March 2018 due to further review by Parliamentary committees. This Bill removes the ability for foreign tax residents to claim the principal place of residence exemption in full including the 6-year absence concession if the property is sold post 30th of June 2019 when the tax payer is a non-resident of Australia for tax purposes. It was rumoured that this was going to be debated again in the Senate before Christmas however it never made the listing. Parliament sits again 12th of February 2019 so it is estimated that this will be heard again sometime on or after this date – and we are expecting a “watered down” version of the Bill however largely the same will still apply meaning that it is extremely important for expatriates to seek proper tax advice before selling their former main residences whilst still residing off shore to avoid any costly capital gains tax bills!
Select Investors are pleased to be rolling out our schedule of Australian Tax Workshops for 2019 starting in February covering such topics as Proposed Capital Gains Tax Changes, Superannuation and Retirement Planning, Expatriation and Repatriation Planning. In addition we are delighted to be presenting the AustCham 2019 Budget Breakfast, the morning after the budget is announced on the 3rd of April.
Please email email@example.com to be included in our future Australian tax workshop invitation lists and further updates.
The information provided in this email is intended for information only and should not be relied upon as a basis for unilateral tax planning action. The rules and bases of taxation are subject to change and the tax principles and rules discussed here have further complexities which need to be taken into account.
Therefore, we strongly recommend that you seek our advice personally in order to reach appropriate tax planning conclusions. St. James’s Place (Singapore) Pte Ltd and Select Investors take no responsibility for your use of this information unless as part of formal tax planning we undertake for you.