Last year I pointed out that Labor's attack on franking credits was a tax on widows, not a tax on the wealthy.
It gets worse - Labor's proposed change to the capital gains tax (CGT) rules, which would reduce the present discount of 50 per cent to 25 per cent, could be an extra tax on the children of the widows.
Labor has promised that the changes will be grandfathered, thus applying only to assets acquired after the proposed start date of January 1, 2020.
This sounds simple at first, but let's delve a little deeper and think about assets such as shares and investment property that form part of a deceased estate.
To understand how it works, you need to be aware that death itself does not trigger capital gains tax, it merely passes the liability to the beneficiaries, who will be liable for CGT when they dispose of the asset.
Currently, from a CGT perspective, there are two main types of assets that may be bequeathed: pre-September 1985 assets and post-September 1985 assets. Why? Because capital gains tax was introduced on September 20, 1985.
Pre-September 1985 assets were CGT-free in the hands of the deceased, so they pass to the beneficiary at market value at date of death.
For example, if your Mum left you an investment property or shares acquired in 1984 that cost $50,000 and are now worth $450,000, you would be deemed to have acquired them at her date of death for $450,000. So, you would start with a high CGT base.
But if those same assets had been acquired in 1986? Your cost base would be $50,000, and you would be liable for CGT on the gain of $400,000 less 50 per cent discount when you disposed of them. If you sold them in one lump, $200,000 would be added to your taxable income in the year of sale.
The CGT landscape will change dramatically if Labor's proposed policies become law. Then there will be three types of assets for CGT purposes: pre-September 1985, pre-January 2020 and post-January 2020.
The sixty-four-dollar question is: how Labor will treat pre-January 2020 assets that have been bequeathed?
Will they introduce a further layer of complexity by requiring sale proceeds to be split into pre-and post-January 2020, and then allow the 50 per cent discount to be applicable to the pre-January component at date of death? Or will they simply slash the discount to 25 per cent for the entire capital gain? This option could cause huge increases in CGT to the beneficiary.
Now I appreciate that 34 years have passed since CGT was introduced and those assets are gradually dribbling out of the system as the owners pass on. However, they still exist in many cases.
What's more, Labor's proposed changes will add another layer of complexity to estate planning.
Anybody with investment assets who wants to split those assets "equally" among their proposed beneficiaries will need to take advice on the proposed tax treatment, because three fairly similar assets may have quite different values to each recipient.
And what should you do if the will-maker is getting near to the end of their expected life? For now, just wait until after the election.
If Labor are able to get this legislation passed, then get advice sooner rather than later on whether it will be more tax-effective to sell the assets before they die, so that the tax is paid by the estate, or to leave them to beneficiaries to sell.
One thing that remains the same now or later is the importance of giving your executor the right to sell or distribute in specie - don't try to rule from the grave, or the ATO could become your main beneficiary.
Once again, shares have an advantage over property, because they can be sold in small parcels to minimise the impact of CGT whenever it hits.
Paul Keating was called the patron saint of financial planners because of the continual changes. I think Bill Shorten may well become the patron saint of estate lawyers.
- Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. email@example.com