Protect your clients from $12 billion hole

by |

The Government has to make up a $12 billion deficit, and hasn’t yet announced how it’s going to do it.

Deloitte Access Economics says the gaping budget hole could be filled by one of the following, if the shortfall was made good entirely from taxes and ‘tax expenditures’:

  • Extending capital gains tax to the family home (raising – eventually – $15 billion a year).
  • Or raising the current 45% rate to 66% (raising $12 billion).
  • Or having the current 45% rate cut in at incomes of $65,000 rather than $180,000 (raising $12 billion).
  • Or raising the 32.5% rate to 37% (that is, do away with that rate completely, raising $10 billion).
  • Or lowering the $18,200 threshold to $12,500 (raising $13 billion, but you’d be taxing about an extra 650,000 people, including many pensioners).
  • Or taxing all superannuation contributions at marginal tax rates (raising $14 billion).
  • Or raising the rate of company tax from 30% to 35% (raising $12 billion – but also adding to franking credits that would cut the personal tax take).
  • Or adding 30 cents a litre in additional taxes on the price of petrol (raising $12 billion).
  • Or tripling the existing taxes on cigarettes (raising $12 billion, and adding about $17 to a pack of 25 cigarettes).
  • Or lifting the carbon tax to $60 dollars a tonne and removing the future link to the European carbon price (raising $12 billion).

All of the above options would be quite ugly, says the accounting firm. Michael Perkins, business and estate lawyer, believes any tax changes would be inside the existing tax envelope.

“Non-dependents tax in superannuation is already there and we haven’t really started to see a lot of big balance superannuation die and go to non-dependents. People are staying healthy by and large, but I think that’s a storm on the horizon.”

The Government could also look at levying capital gains tax on the property of someone who dies, at the date of death. But only to the extent that it applies to personally-owned property.

He says that it is vital for planners to start thinking about how their clients own assets, to help avoid increased taxes. “They need to be conscious of the taxable and non-taxable components of super, because anything they do to enlarge the non-taxable component of super over time, is going to minimise the non-dependent tax issue in the estate.”

Possible strategies include accumulating capital growth assets in a family trust that doesn’t form part of the estate, but that might not suit everyone. Perkins says it is time for planners to take more responsibility for how clients own their assets – not just the investment performance of products and services.

“Understanding how clients own assets is fundamental to helping clients with their financial position, so understanding lifelong cash-flows and having lifelong cash-flow modelling tools is important."

Getting to grips with the pattern of ownership of a client’s property and the impact of that on wealth preservation objectives the client might have, and getting involved in estate planning as a discipline within financial planning is vital, says Perkins.

  • SS on 8/05/2013 9:56:49 AM

    They might want to cease and desist the reckless scattergun approach to public spending. That might also help.

  • Neil on 7/05/2013 10:30:06 AM

    It is tragic that so much damage has been done to this country. How the hell does Labor receive a primary vote of 30%?
    I don't really see the point in speculating about what might be in the budget. We really need to focus on getting rid of this rabble.

  • John Walker on 7/05/2013 9:49:58 AM

    Its funny how these sorts of comments are dressed up to give credibility to the government's handling of our finances.
    We should be up in arms and calling for heads, due to the incompetence of those allegedly leading this country

  • craig m on 7/05/2013 9:39:02 AM

    all very well to rehash the Deloitte report and create some fear but vastly irrelevant unless it becomes law. I would prefer to focus on removing these Muppets from government!

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions