Death and taxes, or taxed to death?

Welcome to Finance and Fury

A plan for structural reforms to help increase Australians’ ability for upward mobility.

The coalition will likely have enough seats to squeeze through a lot of reforms.

Today:

• Income axes going up aren’t much of a concern
• What about the taxes you don’t see directly?
• The effect of these taxes on the economy growth or decline
• How to reduce your taxable incomes?

Taxes – Government revenue source

1. Number of taxes – do you know how may taxes you pay each year?
2. The average Australians pay at least 125 different taxes each year, 99 to Federal, 25 to State and 1 to Local
3. Total tax collected is approximately $528.5 Bn
   1. Most tax comes from incomes of individuals and businesses – 59% or $312 Bn
4. Consumption tax like GST makes up 26.8% was supposed to replace state’s stamp duty
5. Business payroll tax makes up 4.7% or $24.7 Bn charged to companies if they have above a threshold employees/wages
6. Excises on specific goods – normally ones on top of GST at Government discretion
7. Sin taxes – consumption tax on goods which are harmful to society
   1. Alcohol – the social cost from loss of labour, healthcare, accidents and crime costs
   2. Tobacco – the effects of smoking are estimated to cost $320 million but the revenue raised is $12 Bn
8. Does the additional money go back in to addiction treatment programs to help? Or the general spending budget?

Consumption vs Income Taxes

• Both can’t be kept high
• If consumption tax increases the cost of living, income tax should be lower
• Consuming becomes more costly with consumption tax, putting a strain on upwards wealth mobility

Statistics on Taxpayers

• Individuals and income tax reduction plan for 2022 and 2024
• Helping reduce the burden GST placed onto families from 2001 onwards
• Original plan to protect works from bracket creeps
• With wage growth and inflation going up, if the marginal tax brackets don’t increase too you get bracket creeps
• Abolishing the entire tax bracket 90k – 180k incentivises hard work
• Despite these changes you will still see the top 5% of workers paying a 3rd of all income tax collected
• Someone earning $200,000 pays 10 times more tax than someone earning $45,000 per year

How to reduce certain types of tax?

• GST? Stop spending so much. Further excises on your spending only reduce with less spending
• Income tax? Deductions or salary sacrifice
  • Salary sacrifice puts money into super up to $25,000 cap taxed at 15% rather than marginal tax rate
  • Deductions give back the costs of investments or work related expenses and donations to reduce your assessable income

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Negative gearing

• when you spend more on investments than you earn
• Borrow to invest – home equity
• Get your marginal tax rate back and for a lot of people the amount back will decline from 2024
• Lower marginal tax rates for those earning between $40k-$200k

Franking credits – Shares

• Tax offsets on dividend income
• Buy fully franked dividend yielding shares, but gets added to gross income
• Own 1,000 CBA shares. They pay $4.30 per share in dividend so you get $4,300 of income.
• Plus the franking credit, of $1,843 so total income is $6,143
• Earning a salary of 100k, assessed at 39% the tax would be $2,396 minus the franking credit of $1,843 so net tax is now $523.
• Therefore, the marginal tax rate is now 13% instead of 39%
• But, you will simply pay no tax on dividends if your assessable income is all the way up to 200k, as franking credits offset tax on franked income with a 30% tax rate

Family trusts – No changes to distribution rules

• Still allows flexibility and asset protection
• Own assets and distribute income to the lower marginal tax rate individual

Capital Gains/Losses

• Gains still get the discount for assets owned longer than 12 months
• Losses, claim against future gains

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Resources:

Individuals taxation statistics – https://data.gov.au/data/dataset/taxation-statistics-2016-17/resource/4161d1b8-f9e3-4f36-b21d-d5d06b43ed2e

Australian taxes – http://taxreview.treasury.gov.au/content/paper.aspx?doc=html/publications/papers/report/section_2-03.htm