With the Federal Budget just a week away, we consulted our crystal ball to collate some predictions for tax and business related changes we believe could be included in the budget. With last October’s mini-budget under his belt, and with two years until the next federal election, this budget affords Mr Chalmers a good opportunity to make more significant tax changes.

A Taxing Theme

The current economic narrative suggests that the Government is keen to ensure that “the rich” pay their “fair share” of tax. For the time being, it appears that the public are supportive of this narrative, as illustrated by the apparent support for the recent announcement of additional income tax for those with superannuation balances in excess of $3 million.

This theme then informs a few revenue-raising changes that we may see next Tuesday night.

Changes to the Capital Gains Tax (CGT) discount

Whenever the topic of tax reform is floated, a discussion about the 50% CGT discount follows. The discount has found itself in the press again recently which may itself be a way of softening the electorate for change.

With Australian taxpayers paying income tax at an average rate of less than 30%, we suggest that the maximum tax reduction flowing from the CGT discount may be limited to, say, 15%. This is compared with up to 23.5% for those who are on the highest personal tax rate.

Such a change is consistent with the approach that saw the introduction of additional superannuation contributions for taxpayers earning over $250,000 per annum.

Changes to the Main Residence CGT exemption

The Main Residence CGT exemption is another concession in that could be in the Government’s sights. Whilst a complete removal of the exemption would be akin to drinking a pint of political cyanide, it’s possible that the Treasurer may remove the exemption to the extent that capital gains exceed a certain amount, such as $4 million. With a threshold comfortably over Australia’s median house price, the electorate would be reassured that “most of us won’t be impacted by this change”.

Stage 3 tax cuts

We consider that the Morrison Government’s much debated Stage 3 tax cuts are very much in the sights of the Treasurer’s arrow. These cuts which are meant to commence from 1 July 2024 have long been discussed as being too generous.

Changes for business

At the time of writing, the Government had already announced that employers will be obligated to pay their employees’ superannuation contributions on the same day as their wages. This is probably an overdue change that will make it easier for the ATO to match the payments with wages being reported to them.

We aren’t predicting any major incentives for business in this Budget. Any extension of the Temporary Full Expensing or the generous Small Business instant asset write off would seem unlikely at this time.

Contact Pilot

If you would like to discuss any of this in more detail, please contact Murray Howlett or your Pilot advisor on (07) 3023 1300.