Donald Trump’s plans to cut taxes in America, one reason markets are rallying today, will also be felt in Australia.
Trump has said he will cut the company tax rate from 35% to 15% and pull down the top personal rate to 33%, from 39.6%.
“My view is that this is unlikely to happen, given that the cost to the US revenue would be in the trillions,” says Grant Wardell-Johnson, KPMG Tax Partner.
“Probably a compromise package will get through Congress under a Budget reconciliation.”
However, Wardell-Johnson says a lower corporate tax rate in the US, even if not as tiny as 15%, is likely to increase pressure on the Australian government to reduce corporate tax rates, now either 28% or 30%, depending on the size of the business.
“The world appears to be moving to a corporate tax rate band of between 17% and 25%,” he says.
“If the US rate is significantly reduced the pressure for corporate taxation in a competitive band for smaller and medium economies will be even greater.”
Changes to taxes will also impact the 80,000 Americans living in Australia.
Bringing down personal incomes taxes will create a larger differential between Australian and US individual income tax rates.
This will allow US citizens living in Australia to more effectively use investment vehicles such as family trusts and superannuation to reduce their global effective tax rate without triggering US tax.
Trump also plans to remove the infamous US death tax, the Gift and Estate tax.
This will eliminate what is currently a tax of up to 40% on the estates of US citizens who die holding more than $US5.5 million in worldwide assets.
“Australian investors holding US assets can also breathe a sigh of relief, as currently the threshold before paying US estate tax upon death is only $US60,000, over which the tax kicks in,” says Ablean Saoud, KPMG’s global mobility services partner.
However, the best tax news for US citizens living here is the proposed repeal of the net investment income, or Obamacare, tax.
This 3.8% tax on passive income has left a sour taste in the mouth of high income earning US citizens in Australia since 2013 when it was introduced.
“The number of US citizens relinquishing citizenship in the last three years has increased by over 42%,” says Saoud.
“The Trump policy proposals to cut tax rates, remove estate taxes and repeal the Obamacare tax will provide some considerable and welcome relief to them.”
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