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Vote “1” for tax

When I was interviewed for a job with the Labor party  I was asked whether I had ever voted for John Howard. It was a joke question and they did not expect me to answer, but I did.

“Of course”, I said confidently, “he has had a better tax policy for some time.”

This Saturday I will vote based on tax policy. Sounds a bit strange. I think that if you fix the revenue side of the income statement, the expenditure side will fix itself (I hope). If you have a simple, efficient, adequate and equitable tax system, you will have the money to pay for what is important, and you won’t have the money to pay for what is not important so soon enough people will stop borrowing to pay for unimportant things (I hope).

So what do we have for this election. Lets summarise the tax policies of the two real options.

What they both agree on…

  • All the Super changes in the recent budget.

Yes, while they won’t admit it, the Labor party have taken all the savings in the recent budget made from the super changes… Every single dollar. They say they “might” vary them but only if they raise the same amount of money. So you could vote on who is more likely to back down and remove the retrospective nature of the $500,000 lifetime cap but I am unsure who that would be.

  • Company tax cuts for businesses under $2 million.
  • Reducing the R&D tax offset by 1.5%
  • Minor changes to the personal tax rates at $80k
  • Employing more ATO officers to go after multinationals

What Labor is offering…

  • Negative gearing (offsetting the interest losses against slurry and wage income – not other income) gone for all new assets unless they are new residential property.

Yes that means if you borrow, buy shares and the shares pay no dividends in a year you can’t claim the interest as a deduction.

  • 50% discount become a 25% discount

What I love about the Labor policy to limit negative gearing and the 50% discount is they say it will fix housing affordability and is not just a money grab. So how will reducing the 50% discount on shares and stopping negative gearing on shares fix housing prices? This is just a money grab.

  • Keeping the temporary deficit levy so that the highest marginal rate remains at 49%

Lets hope they keep the name so we have a “temporary” deficit levy for many decades to come.

  • Capping of tax deductions for managing tax affairs

What the Coalition is offering…

  • Company Tax rate changes

But don’t trust any promise more than 3 years away as there will be another election before then. However, the Coalitions company tax rate changes will mean small businesses with less than $10 million turnover benefit, rather than $2 million for Labor.

  • Change to SBE definition to $10 million

Not for the Small Business CGT Concessions but this will increase who can get the $20,000 instant asset deduction for one year.

  • Div 7A changes

This will be amazing but won’t happen till 1 July 2018 (10 year loans, repayments and interest only due at 3,7 and 10th year, UPEs not loans…)

  • GST on all low value imported goods
  • Simplified BAS for small businesses (just two labels)

Summary

So almost no difference at all other than the discount and negative gearing changes. But I am tempted to vote for the Coalition just on the Division 7A changes, but this is more an administration issue rather than fixing the revenue side of the income statement.

So I might just buy a sausage sandwich before I go in to vote and see where the tomato sauce lands…

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R&D concessions go full circle

In the 2014/15 Budget the Government announced they would reduce the tax offset rate for the R&D Tax Incentive by 1.5%. This Bill was introduced in 2015 and has since been blocked by Labor and the cross benchers in the Senate.

But, over two years later, Labor has just announced if it wins the election it will pass this reduction to the rate of the offset.

And a timeline…

  • When I first claimed the R&D concessions it was a 150% deduction for R&D expenditure – which at a 30% company tax rate is a 15% return on any R&D expenditure.
  • It then got reduced to a 125% deduction for R&D expenditure – which at a 30% company tax rate is a 7.5% return on any R&D expenditure.
  • It then got changes to, for the big end of town, a 40% tax offset, which at a 30% tax rate is a 10% return on any R&D expenditure.
  • It then got capped to only $100 million of R&D expenditure per group per year.
  • And now, irrespective of who wins the election, for the big end of town it will be a 38.5% tax offset, which at a 30% tax rate is an 8.5% return on R&D expenditure.

But it is worth remembering the policy for the 1.5% reduction in the 2014/15 budget was due to the company tax rate dropping by 1.5% to 28.5% for small businesses (which happened on 1 July 2015). If the Coalition wins the company tax rate for small businesses from 1 July 2016 will be 27.5%. So it is likely a coalition government will reduce the offset rate to by another 1%.

At its worst, the R&D Tax Concession was an uncapped 7.5% return of R&D expenditure. Soon it will be a capped 8.5% return on R&D expenditure, and there is a good chance it will drop again to a capped 7.5% return on R&D expenditure…

Around in circles we go.

FYI, for the small end of town, for companies with a turnover of less than $20 million, the current rate is an offset of 45% but this will reduce to 43.5%.

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My first Solomon Island post

I am working in Honiara for the Solomon Island government and I was asked to look at the Sales Tax Act.

It states there is Sales tax of 50 cents a movie ticket… Except there are no movie theatres in the Solomon Islands. 

There are only 17 “prescribed goods and services” in the Sales Tax Act, and one does not exist…