Summary of the Henry Review

Special report: Henry Tax Review released and the Government's response 

What's the impact on small businesses?

The much anticipated Henry Tax Review report (the report) was released yesterday, 2 May 2010, along with the Federal Government’s initial response.  In short, out of the 138 recommendations presented in the report, only a mere four key changes to the taxation system have been announced by the Government, however, there is a possibility that further recommendations may be adopted and considered in the lead up to and after the Federal Budget delivery on 11 May. 

Treasurer Wayne Swan has noted the issues  under further consideration are: 

• The simplification of tax returns for a large number of individual taxpayers eg. standard tax deductions to remove the requirement to lodge a tax return and
• Further savings incentives.

Here is our understanding of the key impacts and issues you should be aware of: 

What's out

As outlined in the “Stronger, Fairer, Simpler: A Tax Plan For Our Future” joint press release of the Prime Minister and Treasurer, the following have been ruled out for further consideration, despite recommendations by the report.  Thus, the Government has indicated that no changes will be made to: 

1. The family home – which continues to be excluded in means testing
2. The family home – in which no land tax will be introduced while this is a state tax matter
3. Existing not-for-profit tax concessions
4. Existing CGT discount, availability of negative gearing and pre-CGT tax-free status for assets acquired before 19 September 1985
5. Medicare Levy
6. Dividend imputation
7. The status on inheritances – no bequests tax will be introduced
8. Luxury Car Tax will be retained
9. GST rate and GST base
10. Tax free superannuation payments for those aged 60 years and over.

Wins for small businesses

Reduction in company tax rate

While not reduced to the recommended report rate of 25 per cent, the company tax rate will be reduced to 28 per cent. This means small businesses will get a head start before other non-small businesses as summarised in the following table:

A small business company would generally be one which carries on a business with an annual turnover of less than $2 million.

Immediate write-off of assets

Currently, small businesses can immediately write-off assets with a cost of less than $1,000 to a general business pool, instead of following the standard record keeping determining the depreciation rate based on the acquisition date and specific applicable tax depreciation rates as determined by the Commissioner of Taxation. 

The Government will allow asset write-offs of less than $5,000 (as opposed to the report’s recommended $10,000) and all other assets (excluding buildings) at a single depreciation rate of 30 per cent from 1 July 2012.

Superannuation changes

Outside of the report recommendations, the Government has recommended the following, at odds with the report:

• The super guarantee rate will be gradually increased from 9% to 12% by 2019-20 outlined in the following table:

• Raising of the age limit of super guarantee contributions to workers aged between 70 and 75 (currently it is at 70 years old)
  
  
• Government super co-contribution of $500 for workers earning up to $37,000 from 1 July 2012 (while the report recommends removal of existing co-contribution scheme)
  
  
• Workers aged 50 and over with super balances below $500,000 to be allowed to double concessional superannuation contributions to $50,000 from 1 July 2012 (for the year ending 30 June 2010, this is $25,000).

Resources 'super profits’ tax

Probably not hitting the hip pockets of small business, but probably the most controversial and significant recommendation put forward by the Government thus far is the resources ‘super profits’ tax and the corresponding resource exploration rebate which will be used to:

• Generate greater super savings
• Offset company tax cuts and
• Invest in more infrastructure.

The RSPT will be a 40 per cent tax on non-renewable resource project’s profits (rather than production).  The RSPT will apply to resource profits (assessable revenue less deductions including capital allowances) from 1 July 2012 and will be deductible for income tax purposes.

Resource exploration rebate

The rebate is to provide a refundable tax offset for exploration expenditure incurred on or after 1 July 2011. The rebate will apply to all resourcing companies and will be set at the prevailing company tax rate to prevent a perceived double taxation effect on mining companies.

What about the other 100+ report recommendations?

The government concedes that the initial response is just one of the first steps in a 10 year agenda to ensure “we share prosperity fairly [and] maximise our opportunities.”  Although it seems that the Government’s limited response is hardly making the “tax system fairer and simpler for Australian working families and businesses.”

While perhaps speculation but not unreasonably so, further details on other recommendations could be revealed by the Government on Budget night next Tuesday 11 May and possibly leading up to the Federal Election.