Henry Tax Review - the wait is over but was it worth it?
The federal Government has finally released its long awaited response to the Henry Review into taxation. The Government has indicated that its tax plan only covers the first wave of its reforms and is confined to resource, company and small business taxes and superannuation.
The Henry Report contained 138 recommendations for reform. Of these 138 recommendations, the Government has partially accepted some, rejected over 20 but predominately made no response at all, once again leaving tax payers in the uncomfortable position of not knowing what to expect from this review in the future. Interestingly however, whilst the Government has not given its position on all recommendations contained within the review, they have made a number of superannuation announcements that are not specifically linked to the recommendations in the review at all – in fact their major announcement on superannuation goes directly against the recommendations made by Ken Henry.
We have summarised the key responses of the first wave:
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Company taxation
The Government will reduce the company tax rate to 29% for 2013-14 and 28% for 2014-15 except for small business (turnover <$2,000,000), where the 28% rate will apply from 2012-13.
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Small business taxation
From 1 July 2012, small businesses (turnover <$2 million, any type of entity) will be allowed to write-off assets valued at under $5,000. All assets costing >$5,000 will be allocated to a single depreciation pool at a rate of 30%. Buildings are excluded from the increased depreciation rate.
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Resource Super Profits Tax
A Resource Super Profits Tax (RSPT) will be introduced on 1 July 2012 at a rate of 40% on profits made from exploitation of non-renewable resources.
Superannuation
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Superannuation Guarantee
The Government has announced that it plans to increase the Superannuation Guarantee rate from 9 to 12 per cent over time. The rate will increase from 1 July 2013 to 1 July 2019 with increments of 0.25 percentage points in the first two years and 0.5 percentage points each year thereafter.
As incentive for mature workers to remain in the workforce the Super Guarantee age limit will be increased from 70 to 75 from 1 July 2013.
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Higher concessional contribution gap for those aged 50 or over
The $50,000 concessional contribution cap for those aged 50 or over is proposed to be permanently adopted. In order to qualify for the higher cap however the individual would have to have less than $500,000 in super.
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Government super contribution for low income earners
From 1 July 2012 a new superannuation contribution of up to $500 (non-indexed) is proposed to be provided for workers with adjusted taxable income up to $37,000.
What has been specifically rejected?
Whilst the Governments has failed to give some indication of its position on all of the recommendations, it has specifically excluded those listed below:
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Investment tax discounts
The Government has specifically rejected a recommendation to adopt a 40 per cent savings income discount to individuals for non-business related income such as net interest income, net residential rental income, capital gains (and losses) and interest expenses related to listed shares.
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Capital gains tax
Simplifying the capital gains regime by increasing the exemption threshold for collectables and exempting all personal use assets, rationalising and streamlining the small business and CGT concessions by removing various tests and concessions and removing the pre-CGT concessions and replace them with a market value cost base when the exemption is removed.
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Medicare Levy
The Medicare levy and structural tax offsets (e.g., for Senior Australians) should be removed and be incorporated into the personal income tax rates.
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Bequests Tax
No recommendation is made on the possible introduction of death and gift taxes but the Government should promote further study in the area.
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Land Tax
Remove stamp duties including conveyancing stamp duties, and replace it with broad consumption or land taxes. The Government has ruled out imposing land tax on the family home.
Overall, the government’s response to the Henry Review is disappointing. They had promised “root and branch” reform but have not come anywhere remotely near this. It will be interesting to see what happens in the federal budget (out next Tuesday) and in the lead-up to the Federal Election later this year.
All of the recommendations adopted (the few that are partially anyway) will not come in to effect until after 1 July 2012 so it is a case of “nothing changes” for the next two years.