Joe Biden is will become the 46th President next week. While many of his policies are vague, tax is not one of them. And with the Democrats having control of Congress it is likely all these changes will be made… Imagine having to advise your clients about these changes…
- The highest marginal tax rate (kicking in at $400,000) increases by 2.6% (but is still only 39.6%). Not that bad… but what about these changes…
- There is no tax concession on capital gains (like our CGT discount) for taxpayers that earn more than $1,000,000. So if you earn more than $1,000,000 don’t get long term capital gains as they will be taxed ignoring inflation.
- There is no dividend concession (like our imputation system) for taxpayers that earn more than $1,000,000. So if you earn more than $1,000,000 don’t get dividends as they will be double taxed, once at the company and then again at the individual with nothing to limit the double taxation.
- The total deductions a taxpayer can claim who earns more that $400,000 is 28% of their income and certain business expenses will be made non-deductible. Don’t run a business as a sole trader and don’t overly negative gear.
- The company tax rate increases from 21% to 28%. Given that there are no dividend concessions on dividends received by taxpayers earning more than $400,000, paying a dividend could mean an effective tax rate of 56.5% (28% company tax then 39.6% individual tax) on dividends.
- Imposes a 12.4% payroll tax on income earned above $400,000, evenly split between employers and employees (this is ridiculous given there is currently no payroll tax for wages above $137,700). So if you earn $500,000 as an employee, you pay $6,200 extra tax and your employer also pays another $6,200 in payroll tax
Increasing the highest individual tax rate, increasing the company tax rate and removing any dividend concession for high income earners means this happens….
Ouch. It is good to be giving tax advice to high wealth individuals in Australia!