A taxpayer has a discretionary trust and the trust owns a share in a company that runs an accounting practice. The taxpayer is paid a salary of $250,000 for his work in the accounting practice. The profits of the company are paid to the discretionary trust and are generally around $60,000 but this is distributed to the taxpayer’s spouse and two adult kids at University.
The taxpayer also owns a series of rental properties that are negatively geared with losses of $60,000. The taxpayer sold one of the properties and made a gain of $100,000.
The taxpayer has an SMSF. As the taxpayer has substantial property holdings outside super they hold only listed shares in the SMSF. The fund has $1 million in listed share, returning $50,000 of fully franked dividends. The taxpayer makes a $25,000 deductible super contribution each year.
The taxpayer pays $5,000 for personal tax advice and lodging their return.
The effect if at the next election we get el Presidente Shorten…
The $60,000 profit paid to the discretionary trust was distributed $20,000 to the spouse and the children. Each would pay (almost) no tax now, but under the new tax arrangement proposed by the Opposition the Discretionary Trust Distribution Minimum Tax would apply 30% ($18,000).
$18,000 more Tax
The tax on the $250,000 salary will be increased by the Opposition from 47% to 49%, which is an increase of 2%. But in addition, under the Opposition’s announcements, the taxpayer is denied $2,000 of deductions for tax advice, $25,000 of deductions of super contributions and $60,000 from the losses on the rental properties.
Before these changes, the taxable income was $163,000 ($250,000 – $60,000 – $25,000 – $2,000) but now the taxable income is $250,000. The tax was about $47,000 but it rises to over $87,000.
$40,000 more tax
The sale of the shares for the capital gain of $100,000 was reduced to $50,000 and was (mostly) taxed at 47% so the tax was a bit less than $23,000. But now as the Opposition is reducing the CGT discount from 50% to 25%, the gain is only reduced to $75,000 with tax of $36,750
$14,000 more tax
Finally, under the Opposition’s announcements, the SMSF will lose its refundable tax credits of $15,000 each year.
$15,000 more tax
Total – $87,000 more tax each year