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Henry Taxation Review
 Yesterday,
the Government released its response to the final report of the “Australia's
Future Tax System” review team (the Henry report) after considering it for
more than four months. The Government response contains a number of
interesting things including recommendations that they intend to adopt and
the recommendations that they have ruled out.
The Henry Report is in three volumes totalling approximately 1300 pages and
containing 138 recommendations. The Government's initial response, called
“Stronger-Fairer-Simpler. A tax plan for our future”, deals with less than
50 of the recommendations. Further details can be found on
www.futuretax.gov.au.
The full Henry Report can be obtained from
www.taxreview.treasury.gov.au.
We have outlined some of the highlights of the Henry Report under the
headings of Recommendations Adopted and Recommendations Rejected. There are
many other recommendations that have not been commented upon and will
provide the basis for much discussion.
Recommendations Adopted
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1. | A new resources tax will be
implemented from July 2012 taxing non-renewable resource projects on
their super profits. |
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2. | This will be partially offset by a
Resource Exploration Rebate at the company tax rate for exploration
expenditure in Australia on after 1 July 2011. |
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3. | The company tax rate will be
decreased from 30% to 28%. Small businesses will benefit from this
reduction in the 2013 tax year but for other companies it will be phased
in over the next two years (29% for the 2014 tax year and 28% for 2015). |
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4. | Small businesses will be able to
immediately write off assets costing less than $5000 (currently $1000)
and all other assets (except buildings) will be written off in a single
depreciation pool at a rate of 30%. This will apply from 1 July 2012.
Note that the Report recommended that the small-business entity turnover
threshold should be increased from $2m to $5m but there was no formal
response to this recommendation. |
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5. | The ability for workers aged 50 or
more to contribute up to $50,000 in annual concessional superannuation
contributions will continue beyond 30 June 2012 where their
superannuation balance is below $500,000. |
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6. | The Superannuation Guarantee
Contribution rate will rise from the current 9% to 12% by 2019-20 with
the phasing in commencing from 1 July 2013. |
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7. | The Superannuation Guarantee age
limit will be increased from 70 to 75 from 1 July 2013. |
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8. | The Government will provide annual
superannuation contributions up to $500 to individuals with an adjusted
taxable income up to $37,000. This is designed to offset the
contributions tax on compulsory superannuation contributions. |
Recommendations rejected
The Government has announced that, in the interests of business and
community certainty, it will NOT implement the following recommendations of
the Report:
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1. | Including the value of the family
home in means tests (Recommendation 88(c)) |
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2. | Introducing land tax on the family
home (Recommendations 52 and 53) |
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3. | Requiring parents to work when
their youngest child turns 4 (Recommendation 85) |
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4. | Hitting single income families
(Recommendations 92 and 93) |
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5. | Restricting eligibility to rent
assistance for families (Recommendation 103) |
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6. | Making any changes to the tax
system that harm the not-for-profit sector, including removing the
benefit of tax concessions, raising the gift deductibility threshold or
changing income tax arrangements for clubs (Recommendations 9(e), 13,
41, 43 and 44) |
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7. | Reducing overall remuneration to
members of the Defence Forces (Recommendations 6d, 8c and 9e) |
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8. | Reducing the CGT discount, applying
a discount to negative gearing deductions or changing grandfathering
arrangements for GST (Recommendations 14 and 17(c)) |
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9. | Removing the Medicare levy (part of
Recommendation 5) |
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10. | Reducing indexation of the age
pension (Recommendation 84) |
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11. | Removing the benefits of dividend
imputation (Recommendation 37) |
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12. | Hitting pensioner and low income
concessions for utilities, transport and other essential services
(Recommendation 107) |
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13. | Introducing a bequests tax
(Recommendation 25) |
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14. | Aligning the preservation age with
the pension age (Recommendation in Australia’s Future Tax System
Retirement Income Strategic issues paper) |
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15. | Offering a Government annuity
product (Recommendation 22) |
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16. | Asking the states to charge market
rents to public housing recipients (Recommendation 106) |
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17. | Indexing the fuel tax to the
consumer price index (CPI) (Recommendation 65) and |
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18 | Changing alcohol tax, that is, all
alcoholic beverages should be taxed on a volumetric basis
(Recommendation 71). |
In addition, the Prime Minister also reaffirmed that the Government will
never increase the rate, or broaden the base, of the GST, or remove tax-free
superannuation payments for those over 60 years of age.
Our response
There is nothing very shocking in the announced recommendations that cause
great concern for anyone other than those in the mining sector. The
Government’s initial response has been described as a timid first step
towards serious tax reform according to the Institute of Chartered
Accountants in Australia.
Responses over the last few weeks to the impending resources tax have varied
from overwhelming endorsement, so that the Australian public gets to share
in more of the benefits of the mining boom, through to concern that
overtaxing may well stifle investment and kill off the “golden goose”. We
expect there is considerably more discussion and negotiation to take place
before we see a final version of the resources tax.
The other measures announced in relation to small business capital
write-offs and superannuation are very welcome although none of them
represent big-ticket items in the context of Australia's total budget
position.
The Government’s clear rejection of some of the rumoured changes (such as
alterations to the capital gains tax regime, taxing capital gains on the
family home, removal of the dividend imputation system, removing the
benefits of negative gearing, changing the tax-free status of superannuation
payments to those over 60 and introduction of a bequests tax) gives
taxpayers greater certainty over their affairs. We can all sleep easy for a
while longer!
Next week's Federal Budget gives further opportunity for the Government to
announce additional changes coming out of the Henry Review.
We look forward to seeing whether, over the longer term, the aspiration of
building a “Stronger-Fairer-Simpler” tax system can be delivered. In the
meantime will wait for the Federal budget to see what other surprises might
be in store! We will keep you informed.
Published : 3 May 2010
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