Date posted: 20/06/2018 6 min read

Get ready for Tax Time 2018

CAs need to be prepared for questions from clients about how the tax policies of major Australian political parties could affect their future tax status.

In Brief

  • With a Federal election looming, clients are likely to ask about the tax policies of the major parties.
  • Some issues such as changes to franking credits, negative gearing and tax rates are clear.
  • Other areas, including limits on deductions for tax agent’s fees, are less certain.

With a Federal Election on the cards, chances are that clients are likely to use tax time 2018 to quiz chartered accountants on the tax policies of major political parties.

Both Labor and the Coalition have largely revealed their policies, leaving taxpayers well-placed to compare the likely impact on their personal tax calculations.

The Coalition has pushed for much-needed personal tax rate reform, while Labor has responded with a larger tax cut in the short term for low to middle income earners.

In terms of capital gains tax, the Coalition says it will keep the 50% discount, whereas Labor would halve it. That’s an important consideration in deciding what to sell – and when, once the election outcome is known. Negative gearing deductions are to stay under the Coalition, but would be removed on a prospective basis by Labor for investors buying established homes. 

Labor’s plan to eliminate franking credit refunds for individuals and self-managed superannuation funds (SMSFs) has attracted considerable attention. Franking credit refunds have been available for dividends paid since 1 July 2000 and have been factored into clients’ investment and retirement planning ever since. 

Come tax time 2018, it will be relatively easy for CAs to prepare hypothetical tax calculations explaining the after-tax impact if the refund disappears from an individual or SMSF return, and let clients know who may be eligible for Labor’s “pensioner guarantee”.

Related: Winter Tax & Super School

Get hands-on with the latest client challenges in the tax and superannuation sectors, with specially designed case studies to help you maintain your competitive advantage and deliver more value. 

Areas of uncertainty abound

Uncertainty surrounds a number of other tax policies. CAs have many concerns, for example, about the design and operation of Labor’s proposed 30% minimum tax on discretionary trust distributions. I’m told Labor won’t engage in detailed design discussions until after the election, assuming it wins office.

Tax agents will also point out to clients the unfairness of Labor’s proposed $3000 cap on the deduction individuals will be able to claim for tax agent fees. Sure, there is an element of self-interest here, but there are also sound policy arguments.

Related: Available from Your Library –  2018 Tax Checklists

Get some guidance to help you through tax time with our tax checklists. Your Library offers CA ANZ members access to 16 different checklists on everything from capital gains tax to debt equity, trading stock and small business income. 

Tax law is complex and there are many situations where fees can easily exceed $3,000. Tax disputes with the Australian Tax Office (ATO) can be a David vs Goliath struggle and it is often the ATO that instigates client contact and starts the adviser’s fee-clock ticking. Fees also rack up in situations such as relationship breakdowns, starting a small business, termination of employment and where complex tax calculations are required.

On the Coalition side, the recent Federal Budget will also kick-start client conversations, particularly around eligibility for personal tax cuts, Division 7A (disguised loans from private companies) and the Black Economy measures (small business clients).

Related: Have your response ready

Discover what Michael Croker has to say on answering your clients’ concerns about possible tax changes

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