TAX - Avoid Panic Action

Recently, there has been much commentary around purchasing or selling property or shares based on various theories about what might happen as a result of the upcoming Federal Election. Such talk is troubling.

Doing anything as drastic as buying or selling assets based on tax and tax alone, is generally unwise. This is especially so where the decision to buy or sell is being made in the context of what may happen as a result of an Election.

Firstly, it is not at all certain who is going to win the Federal Election. Elections in Australia are normally close (anything more than 52% of the preferred vote is rare). The composition of the Senate – with many minor parties in existence – is even less certain.

Secondly, the detail around tax measures that have been announced is still scarce. For example:

• In relation to proposed negative gearing restrictions, how will ‘new residential property’ be defined?

• In relation to proposals to tax discretionary trust distributions at a minimum rate of 30%, how will discretionary trusts be defined? In particular, will an exclusion be carved out for discretionary trusts which hold farm assets irrespective of who are the members of the discretionary class of beneficiaries? Or will all the discretionary beneficiaries need themselves to be involved in farming?

• In respect of the denial of excess franking credit refunds, similar questions arise. For example, what’s the start date – particularly if the legislation is delayed by Parliament? Will there be exemptions for low income earners?

Finally, any legislation must pass through the Parliament. Even if a proposal does become law, it is almost always subject to fine-tuning (and in some cases significant change) in order to appease crossbench or Opposition senators.

All of this reinforces the point that acting now by buying or selling assets based on mere announcements from either party, can be somewhat fraught. By acting prematurely – solely on the basis of tax – you may create a problem that you would not have had if you did nothing, or spend money on avoiding what turns out to be a non-existent problem.