1. Tax on Capital Gains will increase significantly.

Currently, if an investor holds an asset for more than a 12-month period they pay income tax on 50% of the gain. Effectively an individual paying at the highest marginal rate tax rate of 47% pays an effective tax rate on the gain of 23.5%

Under Bill Shorten, only 25% of the gain will be exempted, so 75% of the gain will be taxed. For an investor paying tax at the highest rate, the effective tax rate will be 35.25% which is an extra 11.75%.

When the MP raises the top tax rate to 49%, the effective tax rate on capital gains will rise to 36.75%. Capital gains on existing investments will not be affected.

2. Negative Gearing

Future negative gearing will be limited to new housing. There’s no specific date placed for this change as yet. Again, we understand that existing investments will not be affected.

This change will impact both property investments and other investments such as shares bought under a margin loan and investments in business using borrowed money  You’ll be able to claim the interest on borrowed homes but only up to the amount of income received.

The major concern with these changes is what happens to the housing markets if investors decide to pull out from the market. Additionally, to compensate investors for the loss of tax deductibility, rents are expected to rise.

3. Franking Credits & Retiree Tax

Under Bill Shorten’s plans, there will be no more cash refunds for excess franking credits. This change will apply from 1 July 2019.

Known as the “Retiree Tax”, hundreds of thousands of self-funded retirees who draw an allocated pension from their SMSF will lose thousands of dollars per annum. By our current estimates, a self-funded retiree drawing $60,000 per annum from an SMSF will be $10,000 per annum worse off. Other low rates and  0% taxpayers who own shares will also be impacted. Shorten has announced that people in receipt of government benefits such as the ages pension will be exempted from this change.

4. Top Personal Tax Rate Rises to 49%

Bill Shorten is proposing to increase the top personal rate from 45% to 47%. When you add on the 2% Medicare Levy the top marginal rate will rise to 49% for anyone earning in excess of $180 000 per annum.

5. Super Contributions Cap to Fall To $75,000

Bill Shorten proposes to lower the cap on non-concessional contributions to superannuation (those contributions made with your own after-tax money) to $75,000 from the current limit of $100,000 per annum.

These types of contributions are often made when people receive inheritances, downsize their homes or receive lump-sum termination payments later in life. Clearly, Bill Shorten doesn’t see the super system as a place for savers to invest their surplus funds. 

Shorten has also announced that he will end the deductibility of personal superannuation contributions within the concessional cap.

6. Higher Rate on Super Contributions

A higher tax rate of 30% will apply to all concessional super contributions made by anyone earning more than $200,000 where the previous limit was $250,000.

This tax is known as Div. 293 and the reduction in income levels will make the super system far less attractive.