The tax policy which is being specified is significant because the main objective of this tax policy is reforming negative gearing and capital gains discount in order to make sure that the present tax system is justifiable, sustainable and assist in targets jobs supported by growth (“Careful but bold” Labor tax policies”,2016.). Negative gearing can be defined as the practice of investing borrowed funds in such a manner which eventually leads to result in a loss that can be proclaimed like a tax deduction (Blunden, 2016). Further, it is a type of financial leverage in which an investor scrounges funds in order to obtain an income-producing investment along with the gross income created through the investment, is less than cost of owning and running the investment, comprising depreciation as well as the interest of loan, not including capital requirements (Cho, Li and Uren, 2017). Hence, from the above facts, it can be assessed that tax policy is significant from the perspective of evaluation of adequate income tax liability.
Primary stakeholders have a significant interest in the success of a proposed project or proposed law policy as the outcome of the same affect them directly. As per the assertions of Andriof, Waddock, Husted and Rahman (2017), the one who initiates the law and end users are considered as a key stakeholder as they are the one which is affected in a significant manner in case the proposed labour policy is implemented as law. The key stakeholders for the Australian Labor Party Policy Proposal are labours, community and tax department. The manner in which this policy will influence them is stated below:
Labour: A general method of which was applied by labours through passing the constraints on property losses by adjusting income from labour was to transform such income in another form by the utilization of partnerships and other legal mechanisms. The policy will have a negative impact on labour as they will be restricted to take undue advantage of taxation provision. Thus, labour will not be able to take the advantages of tax provisions which they were taking prior to this policy in case policy is converted into law. However, labour will be able to adjust the net rental loss against their wage income, but the loss which is relating to the newly constructed building will be eligible for adjustment.
Tax department: The provision of Australian taxation enables the application of property losses occurring from the negative gearing against other kinds of income for example wage or business revenue, with only a few constraints. Furthermore, negative gearing by property investors lows down personal income tax earnings in Australia. It can be accessed that the concept of negative gearing had affected the tax revenue in such a manner that even though the taxation authorities know the fact they are not able to take any action against tax evasion of labour as they are adjusting their income with passive income (property loss). The reason for the aspects is the adjustment of loss in being done in accordance with the existing provision taxation. As per the policy now tax authorities will have more responsibilities relating to assessment that whether the taxpayer is adjusting income against loss of a newly constructed building or any old building in order to restrict negative gearing application.
Community: Community comprises the finance department as well as the real property investment industry. A possibility exists that after the application of this proposed law, investors might not be more interested in investing in real property as a tax deduction which was available in a significant manner have been reduced to the restricted amount. The community has been considered as part of a stakeholder because the labour policy proposal is applicable to individuals and superannuation funds only, but it will have a significant indirect impact on the estate industry as well.
Taxation authority can be specified as the winner in relation to this tax. The reason behind the same is that with the assistance of this tax policy taxpayers will not able to take benefits which they were taking from the provision of the tax prior to the policy. Since the person who is liable to pay the adequate amount of tax liability that is actually payable as per taxation norms. Further, with the imposition of this policy, the taxpayers who were trying to evasion tax will not be able to do the same. In addition to this, the tax treatment of negative gearing and capital gains were benefited investor who will stop after this policy. Moreover, now the capital gains are taxed in the financial year when relocation of ownership takes place, which might take several years subsequent to the initial deductions (Freebairn, 2016). At the same time, if it detained for more than twelve months than in that case only 50% of the capital gain is chargeable which will be beneficial for taxpayers. This policy will reduce the capital gains tax discount for assets that are detained longer than 12 months from the existing 50% to 25% (Australian Labor Party’s Policy proposal, 2017)
In case the tax policy becomes law than the following changes will be applied in order to assess the tax liability and refund procedure:
As per the provisions of this policy from 1July 2019, imputation credits for people and superannuation funds will not be considered under refundable tax contract. This implies that imputation credits can be utilized to lower the payments of tax, but that taxpayers cannot acquire cash repayment for surplus imputation credits. Thus, taxation firms will require reassessing the credit calculations as per new norms.
Further, as a substitute to reduce company tax rate, Labor has recommended an Australian Investment Guarantee which will be valid form 1 July 2020. This is a type of accelerated depreciation which will enable the company to instantly expense 20 per cent of the value of entitled depreciation assets in the first year of all new investments, along with the balance depreciated with normal depreciation schedules from the first year. Moreover, Labor provision suggests pertaining at least 30% of the tax rate on discretionary reliance distributions to adult beneficiaries starting on 1 July 2019. Presently, such distributions are subject matter to tax in the hands of beneficiaries at rational income tax rates, which can result in low effective tax rates for those distributions. Labour provision also recommends that negative gearing will be preserved in its present form only for fresh housing and existing assets. Apart from this, negative gearing with regard to all other assets will be restricted to being against other, i.e. capital gains or investment income but the same will not be applicable for pay and salaries.
Impact of tax policy on work of ATO:
The main responsibility of Australian Taxation Office is to act as principal revenue of collection of the Australian government. ATO is accountable for effective management and shaping the tax as well as superannuation system which supports and provide services to the Australians (ATO Role and Responsibilities, 2016.). In present Australian labour policy, the liability of ATO will enhance relating to the assessment of the effective restriction on negative gearing. The main purpose of ATO is to assist people in understanding their rights as well as obligations, moreover to provide ease of compliance and access to benefits relating to management and compliance with the law. ATO will be responsible for providing the appropriate information relating to a new law to its users so that same can be effectively applied. Australian Taxation Office will provide practical guidance for taxpayers in order to assist them in taking a decision whether to follow existing law or to attempt for proposed changes. Moreover, they are also required to advice relating to administrative approach relating to specific proposed change. For instance, as in the present case explanation is required to be provided that losses from new investment in shares as well as existing properties will be still able to apply for adjusting against income tax liabilities. Further, the loss will be continued to be carried on in order to adjust the capital gain on the investment. A fact which is to be required to be specified by ATO in a clear manner that all the investment which have been made before the date of application will not be affected by the changes which have been applied by the proposed law and will act as fully grandfathered.
References
“Careful but bold” Labor tax policies”. 2016. [PDF]. Available through <https://www2.deloitte.com/content/dam/Deloitte/au/Documents/tax/deloitte-au-tax-alp-tax-policies-2018-220318.pdf/>. [Accessed on 10th September 2018] .
Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., 2017. Unfolding stakeholder engagement. In Unfolding stakeholder thinking (pp. 19-42). Routledge.
ATO Role and Responsibilities. 2016. [Online]. Available through <https://www.ato.gov.au/About-ATO/About-us/> .[Accessed on 10th September 2018[.
Australian Labor Party’s Policy proposal. 2017. [Online]. Available through <https://www.alp.org.au/negativegearing>. [Accessed on 10th September 2018].
Blunden, H., 2016. Discourses around negative gearing of investment properties in Australia. Housing Studies, 31(3), pp.340-357.
Cho, Y., Li, S.M. and Uren, L., 2017. Negative Gearing Tax And Welfare: A Quantitative Study For The Australian Housing Market. Routledge.
Freebairn, J., 2016. Taxation of the housing. Australian Economic Review, 49(3), pp.307-316.
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