Tax changes are far from over
Changes associated with the new tax system are far from complete, according to Mercantile Mutual national technical services manager Tony Negline.
Speaking at the recent Financial Planning Association national roadshow, Negline said planners should be aware of the impact of the recent changes in taxation and the fact that more was to come over the next few years.
Negline says the application of an entity tax regime remains a concern. This will tax all non-super trust payments in much the same way as companies while beneficiaries will also continue to be taxed at their own marginal tax rate for any income received from a trust.
Under the new law, distributions, taxed at 30 per cent, at the entity level will attract franking credits. This tax will be payed under the quarterly Pay As You Go (PAYG) system but the franking credits will be useless until the beneficiary makes a claim for them in their own tax return.
Negline says the main purpose of many trusts is to generate income, taxed at the beneficiary level, with the timing of the distributions and the tax payments carefully planned.
"This creates a disincentive where trusts are used for income purposes and may create a shortfall in income for either those in retirement, with testamentary trusts, or reliant on a deceased estate," Negline says.
Another area of concern is a new method for determining taxation which Negline considers a rewriting of the tax system.
After 1 July 2002 the tax system will move from a system of assessable income and allowable deductions to one which treats all payments received as income and all payments made as expenses.
"Our system of tax laws will not disappear as a result of this change. What changes is that all existing decisions no longer carry weight under a tax system that has different meanings," Negline says.
"So far this is draft legislation with in principle support from both sides in
Parliament and the effect will be hard to guess until laws are in place. Yet for every adviser this makes offering advice beyond that date extremely difficult."
AUTHOR
Jason Spits
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
