BULAW3731 Taxation Law Report: Income Tax Law & Practice Analysis

This report provides an in-depth analysis of Australian taxation law, focusing on the impact of recent tax changes. It examines proposed cuts in personal tax, tax offsets for middle and lower-income earners, and the government's budget announcements regarding additional tax cuts. The report also delves into the implications of policies related to housing affordability, specifically the restructuring of negative gearing and capital gains tax arrangements. Furthermore, it explores the impact of boosting tax concessions for institutional investors and the implications of changes to discretionary trusts. The analysis considers the potential effects of these policies on various stakeholders and assesses the fairness and effectiveness of the proposed tax reforms, including a critical evaluation of the negative gearing and capital gains tax concessions and their impact on different income groups.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
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Table of Contents
Answer to question 1:.................................................................................................................2
Cuts in personal tax:...................................................................................................................2
Tax offsets for middle and lower income people:..................................................................2
Budget announcement of additional tax cuts:........................................................................2
Positive plan to assist housing affordability:.........................................................................3
Boosting tax concession for institutional investors:...............................................................4
Negative gearing:...................................................................................................................4
Discretionary Trust:...............................................................................................................5
Answer to question 3:.................................................................................................................5
References:.................................................................................................................................8

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Answer to question 1:
Tax is regarded as the frontline for both the main parties in the forthcoming federal
poll. Below stated are some of the main tax changes that would create an impact on the
individuals;
Cuts in personal tax:
Tax offsets for middle and lower income people:
From the year 2018-19 there are greater than four million taxpayers that are earning
amid the range of $48,000 and $90,000. These taxpayers will GET a sum of $530 per year or
$10.19 each week. In the year 2021-22 when the lower and the middle income tax offsets
ends, the benefit would then become locked in the rising top threshold of around 19% bracket
of tax ranging from the amount $37,000 to $41,000 and ultimately raising the lower income
tax offset ranging from $445 to $645 from 1st July 2022 (Rsm global, 2019). According to the
government from 1st July 2022 onwards the top tax rate of 32.5% bracket would increase
from $90,000 to $120,000 and providing a tax cut till the extent of $1,350 each year for the
taxpayers that are falling in under this income range and above. From 1st July 2024 onwards,
the government would increase the top amount of threshold limit of 32.5% tax brackets from
$120,000 to $200,000 and eliminating the 37% tax range totally.
Budget declaration of additional tax cuts:
The coalition government on 2nd April declared that $158 billion as the tax relief
forms the focus of the 2019 budget. The initial portion of the proposal comprises of the
doubling the amount of tax offset that was declared in the budget of previous year. If the
proposed changes are approved in the Assembly then the taxpayers that are netting up to
$126,000 each year would be able to get around $1,080 back at the time of tax (Abc.net.au,
2019). The coalition in the 2019 budget announcement has also declared that it will flatten

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the bracket of tax by the year 2024 and would cut down the bracket of tax rate from 32.5% to
30%. This implies that the taxpayers that are deriving between the $45,000 and $200,000 can
have their rate of tax reduced to 30%.
Optimistic proposal to assist housing affordability:
A shorten labour government would aim to enhance the housing affordability and
would support the building of housing by restructuring the negative gearing and arrangements
related to capital gains tax. According to labour all the investment that are made before the 1st
January 2020 would be entirely grandfathered (Alp.org.au 2019). The labour has proposed
the comprehensive plan for improving the housing affordability and supporting the
construction. A shorten labour government aims to limit the negative gearing to the new
housing beginning from the period 1st January 2020.
All the investment that are made before this would not be impacted by the alterations
and would be entirely grandfathered. Half amount of CGT discount would be provided for all
the assets that are bought after the 1st January 2020. This will ultimately help in reducing the
capital gains tax discount from assets which is relatively owned by the taxpayer for more than
twelve months from 50% to 25% (Abc.net.au, 2019). All the investment that are made before
the 1st January 2020 would be completely grandfathered. The labour government has also
placed the negative gearing at work so that it can limit the new investment property in order
to boost the supply of housing and employment.
The element of grandfathered of the labour policies are applicable to the property and
assets that are bought before the commencement date of the policy. This implies that if a
person owns the property before the date of 1st January 2020, the taxpayers are required to
gear it negatively following that date (Martin et al., 2016). The changes that are bought to the

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CGT discount would not be applicable on the superannuation funds or a taxpayer can obtain
the 50% active asset reduction concession that are applicable to the small businesses.
This policy would be helpful for supporting the construction of housing which would
contemplate the 10-year plan for supporting the building of 250,000 new inexpensive house.
The labour policy aims to promote more by building the rental housing construction where
more number of renters would be able to gain stable long run rentals and additional amount
of housing in the chosen sites that are near to the public conveyance and nearby the
opportunities for occupation.
Boosting tax concession for institutional investors:
The federal opposition has made announcement by stating that it would reduce the
levies for the institutional investors that construct rent payment houses. Labour aims to cut
down the managed investment trust rate of withholding on the tax allocations that are
attributable to the investment in the build to rent housing (Woodhead, 2016). This implies
eligible build to rent investment houses would be required to pay the 15 per cent rate of tax
rather than 30% tax rate that is proposed by Scott Morrison.
Negative gearing:
The negative gearing would be restricted to the freshly constructed houses from the 1st
January 2020. All the investment that are made past to this date would not be impacted by the
modifications and would be completely grandfathered. This implies that those that are
already having the investment properties would yet be capable of obtaining the deductions on
those properties which is in contradiction of their earnings (McKenzie, 2018). The industry of
housing has however cautioned against the restriction of negative gearing. When the negative
gearing was abolished temporarily on the rental houses by the Hawke government during the

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year 1985 there was a rise in rents in Sydney and Perth, but not all through Australia as the
property industry has been warned what would occur in future.
Discretionary Trust:
A new update has been made to the discretionary trust distribution for the
beneficiaries that are mature or persons that are above the age of 18. Currently there is a high
rate of tax on the distribution to those that are under the age of 18 years (Smith, 2015). The
announcement in the policy is mainly aimed at reducing the usage of income splitting to
reduce the amount of tax. As a result of this, there would be reduction in the benefit from the
allocations that is exaggeratedly divided among the different persons under the lower bracket
of tax where the overall amount of tax that is paid is lower than it may otherwise be.
Answer to question 3:
Australia is presently regarded as having the most generous property tax concession
all through the world. The substantially large amount of property tax concession implies that
at first the home purchasers are locked out of the housing market by competing with the
investors that are looking to buy more number of houses (Woellner et al., 2016). The present
arrangement associated to the negative gearing and capital gains tax concession mainly
benefits the higher income earners. As understood 70% of the benefits arising from the CGT
discount and 50% of the benefits originating from the negative gearing goes to the top 10%
income makers. The negative gearing and capital gains concession cannot be regarded as
generous concession on property tax because it promotes excess amount of leverage in the
market of real estate.
Furthermore, in respect of good tax policy the announcement made by labor is mainly
directed towards the benefit of wealthy individuals from the trust than the lower and middle

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wage makers and in a number of the situation the trusts are mainly used for reducing the tax.
Furthermore, there are no plans to impose tax on the discretionary trusts (Minas et al., 2018).
With respect to the good tax system it can be stated that the policy of tax hike on the small
business operatives all through the Australia that uses the discretionary trust structures as the
legitimate method of administering their monetary matters.
As noticed the changes in the policy would also not create an impact on the
investment that are made by the superannuation funds. Therefore, the capital gains tax
discount would not result a modification for the assets of small business. It can be stated that
the CGT discount is tilted in the direction of higher-income people and investors are at the
cost of seeking home purchasers which is high-priced (Freundenberg & Minas, 2018). The
changes in the capital gains tax will negatively create an effect on the taxpayers ranging from
the lower to middle income group people. The proposed policy changes are yet to be
completely costed because the proposed application date of 1st January, 2020 was announced
only during March 29, 2019. It is estimated that the such policy changes and the changes in
the negative gearing concession could altogether raise around $2.9 billion over the span of
four years.
An argument can be bought forward by stating that the changes in the policy
concession is very much generous and it is also unfair since it makes it hard for the younger
Australians and first home purchasers to enter into the market (Bentley, 2019). In addition to
this, it can be argued that delay in the changes till the property prices until it is completely
recovered from the current slump in the capital cities would ultimately raise the uncertainty in
the market.
In regard to good tax system the Australian labour party has the ambitious agenda of
tax and superannuation reformation that has been published in stages over the years (Lie &

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Que, 2019). The labor party modelling provides suggestion that majority of the income
raising measures affecting individuals would create an impact on the primarily on the high
income earners, a claim that Coalition contest in the policy areas such as negative gearing and
franking credits refunds.
In addition to this, tax reformation is mainly designed to increase the transparency and
lower down the gearing deduction that are claimed against the Australian tax base.
Furthermore, the new policy changes would limit the negative gearing to the new houses.
Under the new suggested policy will still be capable of reducing the net rental losses from the
salary and wage income (Pawson, 2017). The losses that are derived from the negative
gearing property would not be permitted to claim against the salary and the wages income but
it is allowed to be claimed against the positively geared assets.
With limited amount of vacant land for the newer housing development and imposing
tighter controls on the bank lending, one is left wondering how the ALP would be able to
achieve their claims of increasing the investment and affordability of housing. The policy
also appears to be favourable for the matured investors that may have the combination of
positively geared and negatively geared properties while majority of them working in
Australia with the single negative geared property would be missing out.
Furthermore, the proposal of halving the capital gains tax discount for the assets that
are held for more than twelve months would decrease from 50% to the 25% cannot at all be
considered very bad for the investors (Lie & Que, 2019). On a positive side, for the
superannuation funds and small businesses, with labor indicating that the investments that are
made by the superannuation funds would be executed and there would be no kind of changes
to the current regimes of the small business capital gains tax. The proposal however cannot
be considered as a good tax policy but would help in improving the affordability of housing.

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References:
Bentley, D. (2019). Does A Capital Gains Tax Work? The Australian Experience Eleven
Years On. Journal of Malaysian and Comparative Law, 23, 13-36.
Freundenberg, B., & Minas, J. (2018). Reforming Australia's 50 per cent capital gains tax
discount incrementally. eJTR, 16, 317.
Labor party updates policy - implications for negative gearing and CGT. (2019). Retrieved
from https://www.rsm.global/australia/insights/tax-insights/labor-party-updates-
policy-implications-negative-gearing-and-cgt
Labor to limit negative gearing concessions to new properties from January 1. (2019).
Retrieved from https://www.abc.net.au/news/2019-03-29/labor-to-end-negative-
gearing-concessions-for-new-investors/10951194
Lie, E., & Que, T. (2019). Union Concessions following Asset Sales and Takeovers. Journal
of Financial and Quantitative Analysis, 54(1), 393-424.
Martin, C., Pawson, H., & van den Nouwelant, R. (2016). Housing policy and the housing
system in Australia: an overview.
McKenzie, M. (2018). The erosion of minimum wage policy in Australia and labour's
shrinking share of total income. Journal of Australian Political Economy, The, (81),
52.
Minas, J., Lim, Y., & Evans, C. (2018, August). The impact of tax rate changes on capital
gains realisations: evidence from Australia. In Australian Tax Forum (Vol. 33, No. 4).
Pawson, M. (2017). Reflections on the Australian tax system. Taxation in Australia, 52(3),
106.

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Positive plan to help housing affordability. (2019). Retrieved from
https://www.alp.org.au/negativegearing
Smith, J. P. (2015). Australian state income taxation: A historical perspective. Austl. Tax
F., 30, 679.
Tax policy changes you need to know ahead of the federal election. (2019). Retrieved from
https://www.abc.net.au/news/2019-03-29/tax-changes-you-need-to-know-ahead-of-
the-federal-election/10945466
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.
Woodhead, M. (2016). Australia will price out cigarettes with 50% tax rise over four years.