Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch, said the political agenda in the run-up to the federal budget next week has given tax professionals much to consider in the build up to the next federal election.
“We really do have a very clear choice in the next election certainly on tax,” said Professor Deutsch.
“One party is going down the path of tax relief to try and work the economy and get re-elected, quite frankly; while the other party is choosing to maintain higher rates and change a lot of things like negative gearing, CGT discount, distributions out of trusts, thereby raising more revenue and being able to spend more on projects that the community needs so there are two very clear approaches here that are very different.
“It's going to be a big year in tax.”
According to Professor Deutsch, some of the main tax battlefronts include Labor’s plan to halve the CGT discount for individuals down to 25 per cent and a prohibition on negatively gearing investment properties other than newly built properties.
“I am not opposed to that [CGT] change, I have always maintained that the discount that we currently offer on CGT is overly generous and it should be pared back and I think Labor's probably got it about right to bring it back to 25 per cent,” said Professor Deutsch.
“There'd be an argument to bring it back more gradually and reduce it over a period of time rather than in one hit but I think what they are proposing is not inappropriate and there is no indication from the federal government that they are looking to match that in any way as far as I can tell.”
On the flip side, the government has dangled the tax relief carrot, all but confirming tax cuts for individuals, while pushing for a reduction in the corporate tax rate.
“What I'm hearing from the government is that they are just going to be adjusting the brackets to reduce tax for everyone but it is going to be a bigger percentage increase for the lower paid,” said Professor Deutsch.
“I suspect it'll be some adjustment that will happen from 1 July 2018 and then further adjustments in the ensuing years and that of course depends on the Coalition being re-elected for those to come to pass.”
While Professor Deutsch believes the government will be able to afford the costs of cuts through a tightening of measures in the black economy and work-related deductions, it will hamper its spending power in the budget.
“That is quite expensive to do and there are a number of areas where they could target — one of them is tightening up the black economy which I think is part of the focus and I think the government is quite optimistic that they will be able to get quite a lot of money in from that process,” he added.
“[Secondly], a tightening up of work-related expenses, which I know is a high-profile area that the tax office is looking at and I know there is a lot of work being done there and it is surprising how much can be raked in if you can reduce work-related expenses by something fairly modest like 5 per cent overall, which would give rise to a fairly large chunk of additional income in the form of tax.
“It can be done but it will be at the cost of doing other things which on the spending side of the budget they won't be able to do if all this money disappears in the form of tax relief which is obviously the main political battle because Labor has a different view of the world.”
Are you thinking of expanding your offering into SMSFs to grow your client base? Become a pro at SMSF fundamentals and make your clients bulletproof with the SMSF Foundations course. Learn directly from Aaron Dunn from Smarter SMSF as he deep-dives into the fundamentals you need to know to successfully undertake your work as an SMSF practitioner. Earn up to 21 CPD hours! Learn more
Jotham Lian is the editor of Accountants Daily, the leading source of breaking news, analysis and insight for Australian accounting professionals.
Before joining the team in 2017, Jotham wrote for a range of national mastheads including the Sydney Morning Herald, and Channel NewsAsia.