Overview of presentation Previous years budget announcement Federal - PowerPoint PPT Presentation

Overview of presentation • Previous years budget announcement • Federal Budget overview • Tax divide between political parties • Division 7A • SMSF Audit • Image rights • WRE • Black economy • Have we heard all this before

Main Residence exemption – foreign Residents 2017 Budget announcement to deny foreign residents access to the CGT main resident exemption from 9 th May 2017 Only Australian residents can access main residence exemption • No exempt portion of any future capital gain on a disposal (all or nothing) • Transitional measure, properties held at 9 th May 2017 will continue to qualify for the exemption if sold by a foreign resident on or before 30 th June 2019

Main Residence exemption – foreign Residents If you a non-resident on the date your contract of sale is signed (as opposed to settlement date), you will be subject to CGT on 100% of the capital gain • Vicki acquired a dwelling on 10 September 2010, moving into it and establishing it as her main residence On 1 July 2018 Vicki vacated the dwelling and moved to New York. Vicki rented the dwelling out while she tried to sell it. On 15 October 2019 Vicki finally signs a contract to sell the dwelling with settlement occurring on 13 November 2019. Vicki was a foreign resident for taxation purposes on 15 October 2019 • The time of the CGT event A1 for the sale of the dwelling is the time the contract for sale was signed, that is 15 October 2019. As Vicki was a foreign resident at that time she is not entitled to the main residence exemption in respect of her ownership interest in the dwelling Note: This outcome is not affected by • Vicki previously using the dwelling as her main residence; and • the absence rule in section 118 - 145 that could otherwise have applied to treat the dwelling as Vicki’s main residence from 1 July 2018 to 15 October 2019 (assuming all of the requirements were satisfied) Note : Note that if Vicki returned to Australia and re-established her Australian residency status for tax purposes before 15 October 2019, she would be entitled to the full main residence exemption

Main Residence exemption – foreign Residents Implications • Foreign residents may consider selling their main residence before 30 th June 2019 to benefit from transitional rule • Individuals who are becoming non-residents of Australia may want to consider whether they should enter into a contract to dispose of their former Australian residence before they permanently depart Australia • Exploring ways to remain a resident of Australia for tax purposes, however, this may have other, negative tax implications as they may then become taxable on their non-Australian sourced income

Changes to small ll busin iness CGT Concessions As part of its 2017-18 Budget, on 9 May 2017, the Government announced proposed amendments which would limit the application of the small business CGT concessions (SBCGT Concessions). • ‘ improve the integrity of the tax system ’ Note: The breadth of the changes proposed raise a question as to whether the Bill will result in an integrity improvement or a broader shift away from the policy intentions which have underpinned the SBCGT Concessions since their introduction in 1999

Changes to small ll busin iness CGT Concessions Current SBCGT Rules Proposed new SBCGT Rules The current SBCGT Concession rules apply the The Bill proposes that additional basic conditions will following additional basic conditions for capital gains apply for capital gains relating to shares in a relating to shares in a company or interests in a trust: company or interests in a trust (Object Entity) as • if the relevant taxpayer is an individual, either the follows: • either the taxpayer must be a CGT concession taxpayer or their spouse must be a ‘CGT concession stakeholder’ in the Object Entity or stakeholder in the Object Entity, or CGT concession • if the relevant taxpayer is a company or trust, CGT stakeholders in the Object Entity must hold at least concession stakeholders in the Object Entity must 90% of the interests in the taxpayer • unless the taxpayer satisfies the maximum net asset together hold (directly or indirectly) at least 90% of the interests in the taxpayer. value test (MNAVT), the taxpayer must have carried on a business just prior to the CGT event • the Object Entity must either be a CGT small business entity for the income year or satisfy the MNAVT and • the shares or interests in the Object Entity must satisfy a modified active asset test.

Changes to small ll busin iness CGT Concessions • The requirement for the Object Entity to meet the MNAVT or small business entity test will exclude taxpayers who are presumably outside the integrity concern • To make matters worse, the Government has retained a retrospective application date of 1 July 2017 • integrity improvement or a broader shift away from the policy intentions which have underpinned the SBCGT Concessions since their introduction in 1999 • no requirement to test whether an Object Entity satisfied a maximum net asset value • also proposed a shift from testing the taxpayer only (i.e. the entity disposing of an asset, share or interest) to a twofold approach which also tests an Object Entity. This is seemingly on the basis of a policy intention that an Object Entity must itself be a CGT small business entity in order for the SBCGT Concession to apply

Purchasers of f new houses – th the new GST coll llectors The new GST rules which impose a withholding obligation for purchasers will: • apply from 1 July 2018 • apply to sales of land with new residential premises or potential residential land • make the purchaser liable to remit GST to the ATO and • require the vendor to provide a purchaser with a notice This is another compliance obligation to be imposed on vendors and purchasers (for example, in addition to the foreign resident CGT withholding) that will need to be considered A vendor is required to provide the purchaser with a specific type of notification (relating to GST on the supply) before making the supply. This notification informs the purchaser that they are required to make a GST payment to the ATO and outlines the amount of GST owed. Failure to do so may result in 100 penalty units (which is currently $21,000, or up to 5 times that amount for corporations) The amount of GST to be paid is 1/11 th of the contract price of the supply. However, where supplies are made under the margin scheme, a statutory rate will apply. The statutory rate of 7% (or greater amount as determined by the Minister in a legislative instrument, but no more than 9%) must be withheld by the purchaser and paid to the ATO The vendor will be entitled to a credit for the amount of any payment made to the ATO by the purchaser Law companion ruling LCR 2018/D1

Federal Budget 2018-19 • Election budget political imperatives versus economic reality • Windfall - Pay down debt versus tax relief • Minor tweaks to superannuation seen as a positive • Progressivity of our tax system • Black economy long game some interim measures announced

Divergent tax policies • The next 12 months is “going to be a big year in tax”, as political parties have started drawing distinct lines in tax policy ahead of the up coming federal election • Need for tax agents to explain implications of these policy differences to their clients

Divergent tax policies Coalition’s current tax policies are: • A reduced corporate tax rate for all companies eventually with a target rate of 25%; • A reduction in personal tax rates; • From 2018-19 to 2021-22 new tax offset for middle and lower income earners • From 1 July 2018 32.5% tax bracket increased to $90,000 • From 2022-23 increase 19% tax bracket to $41,000 and increasing LITO from $445 to $645 and further increase 32.5% tax bracket to $120,000 • From 1 July 2024 abolish 37% tax bracket entirely and increasing top marginal tax bracket to $200,000 • No change to current arrangements regarding negative gearing of investment property; • No change to the CGT discount which currently sits at 50% for individuals; • No change to the current arrangements regarding trust distributions from discretionary trusts; • No change to the current arrangements regarding imputation in particular, full refund of excess imputation credits; and • No changes in relation to depreciation – the $20,000 immediate asset write-off available to 30 June 2019

Tax Rates Overview Income Amount Current Rates Post 1 July 2018 Post 1 July 2024 Tax payable Effective Tax payable Effective Tax Payable Effective Avg Tax Avg Tax Avg tax Rate Rate Rate $40,000 $4,947 12.37% $4,657 11.64% $4,492 11.23% $60,000 $12,147 20.25% $11,617 19.36% $11,607 19.35% $80,000 $19,147 23.93% $18,617 23.27% $18,607 23.26% $100,000 $26,632 26.63% $26,117 26.12% $25,507 25.51% $120,000 $34,432 28.69% $34,217 28.51% $32,407 27.01% $140,000 $42,232 30.17% $42,097 30.07% $39,307 28.08% $180,000 $57,832 32.13% $57,697 32.05% $53,107 29.50% $200,000 $67,232 33.62% $67,097 33.55% $60,007 30.00% Notes: • “Total payable" includes the Medicare levy; • Adjustments have been made to reflect the low income tax offset and low and middle income tax offset where relevant;