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On Donald Trump’s Inauguration Day, our USA Alliott Group member firm, Bowman & Company LLP highlighted the proposed US tax system reforms, the realistic timeframe for them and what they could mean for international business.

The table below summarises provisions contemplated under US tax plans:

Item Current House Republicans                      President Trump

 

Ordinary tax rates  

10-39.6%

12%  0-$75k

25%  $75k - $225k

33%  over $225k

 

0 – 25%

Capital gains

 

0-20% 50% excluded 0 – 20%
Alternative min tax

 

26-28% Repealed Repealed

Net investment income tax

3.8% (Obamacare funding)

Repealed Repealed
Standard deduction

$6,300   Singles

$12,600 MFJ1

$12k Singles

$24k MFJ1

$15k Singles

$30k MFJ1

Personal Exemptions

 

$4,000 Eliminated
Itemised deductions -      Medical

-      Taxes

-      Charitable

-      Mortgage Interest

-      Investment Fees

-      Gambling (limited)

-      Employee Business

-      Mortgage Interest

-      Charitable

Cap at:

$100k  Singles

$200k  MFJ1

Estate Tax

 

40% Repealed Repealed

Step up in basis on death

Permitted Unknown

Tax over $10mil (exemption for small businesses and family farms)

Business income (flow through) Ordinary Rates 25% 15%
Corporate Income Tax 35% 20% 15%

1 Married/Family/Joint

This compares to current Australian income tax rates for Financial Year 16/17 of:

Tax Threshold Rate
Income Tax 18,201 $0 + 19% > $18,200
37,001 $3,572 + > $37,000
87,001 $19,822 + >$87,000
180,001 $54,232 + (45% + 2%) > 180,000
Medicare Levy $21,335 for Individual

$36,001 + $3306 per child for families

2% above the threshold
Company Tax $2mil turnover p.a. 28.5%2
$10mil + turnover p.a. 30%2

2 Proposed to reduce to 27.5% for up to $10 mil turnover for FY 2016/2017, then forecast to reduce to 25% by FY2026/2027

Global Trade to be affected

From an international perspective, the provisions that will most affect global trade include the proposal to permit immediate expensing of capital investments. In addition, the plan adopts a “territorial” approach for foreign business income to make the United States a more attractive place to headquarter multinational corporations. When combined with the lower corporate tax rate, the proposal would likely generate a large inflow of real investment, rather than repelling it as the current system does.

For further information on the impacts of US tax system changes for your international business interests, please speak with your usual Hanrick Curran advisor or our international business tax partner Jamie Towers on 07 3218 3900.

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.