Henry Review Summary

The Government's initial response to the 138 recommendations contained in the final report of the Australia's Future Tax System review team (also known as the Henry Report) was released on Sunday. 

In the Government's response, a small number of these recommendations were adopted, others rejected and ruled out and other changes announced that differ from recommendations made by the Review.  By far the greatest number of recommendations have been left untouched to be commented on in the coming months, or where deemed by the Prime Minister and Treasurer as not part of government policy, these recommendations have been left to be debated over the coming years.

This summary outlines those recommendations primarily relevant to SMEs and business owners.

Adopted Recommendations

Reduction of the company tax rate

The current 30% company tax rate will be reduced to 28% from 2012/2013 for an "eligible small business entity", or as a phased reduction for other companies and shown below.

While the Henry Report recommendation was to reduce the company tax rate to 25% and increase the small business entity turnover threshold from $2m to $5m with adjustments to the $6m net asset value test, there has been no formal response from the Government on the small business turnover threshold.

The response also does not address any reductions in tax for other small business entities trading as sole traders, partnerships or trusts.

The Government will consult on exposure draft legislation, with relevant issues to include instalment and franking arrangements.

Small business capital allowance concessions

From 1 July 2012, the current capital allowance concessions will be expanded to enable small businesses to:

•  immediately write off assets valued at under $5,000 (currently $1,000)
• and other assets except buildings in a single depreciation pool at a rate of 30%. 

Under the current law, businesses are required to allocate assets with an effective life of less than 25 years to a "general small business pool" at a rate of 30% and assets with an effective life of more than 25 years to a "long life small business pool" at a rate of 5%.

Consultation on these changes will occur in 2010-11.

Superannuation Guarantee rate to be increased to 12%

The Superannuation guarantee rate will increase from 9% to 12% phasing in from 1 July 2013, with 0.25% increases in the first 2 years and 0.5 each year after:

As a result, individuals especially those under age 50 need to take care when making concessional contributions, as the higher Superannuation Guarantee rate will consume more of the concessional contribution cap.
The phase in period also enables employers to take the higher Superannuation Guarantee into consideration when negotiating future salary increases with employees.

Superannuation Guarantee age limit raised to 75

The Superannuation Guarantee age limit will be raised from 70 to 75 from 1 July 2013.
Currently compulsory employer contributions are not required for employees over the age of 70, however self-employed people and employers can make deductible contributions for employees aged under 75.

Concessional contribution caps for over 50s to continue

From 1 July 2012 individuals aged 50 and over with total superannuation balances below $500,000 will be able to make up to $50,000 in concessional super contributions.

Eligible individuals under the age of 75 will still be able to make non-concessional contributions to superannuation up to $150,000 per year.  Those under 65 years can also bring forward 2 years work of non-concessional contributions, allowing them to contribute up to $450,000 of non-concessional contributions in any 3 year period.

As this measure only applies to people with total super balances below $500,000 couples may want to consider splitting their contributions.

Superannuation contributions for low income earners

From 1 July 2012, the Government will provide a further contribution to workers with incomes up to $37,000. 

The contribution will be equal to 15% of the concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000, with an annual maximum amount of $500.  Concessional contributions made from 1 July 2012 will be eligible, with the first Government contributions to be paid in 2013-14.

Low income or non-working individuals such as spouses of higher income earners, who receive investment income could benefit from this change, as it can boost their retirement savings and/or enable them to purchase more cost effective insurance cover.

Other announcements

• A new 40% "Resource Super Profits Tax" (RSPT) will be introduced from 1 July 2012, which will apply to all legal entities directly involved in exploiting Australia's non renewable resources, except for project already covered by the Petroleum Resource Rent Tax, which will be allowed to opt into the RSPT.
• Exploration expenditure incurred and carried out in Australia from 1 July 2011 will provide a refundable tax offset at the prevailing company tax rate.
• From 2012/13 some of the proceeds of the RSPT will be directed into a State Infrastructure Fund and paid to the States annually to support State and Commonwealth investment in infrastructure.  Resource-rich states will receive relatively more of the Fund to support infrastructure necessary for the development of the resource industry.

For details about the recommendations Government rejected or did not comment on click here...