On Sunday, 2 May 2010 the government finally released the Henry Review entitled 'Australia's Future Income Tax System - A Report To The Treasurer'. In addition, the government released its initial response in relation to the report.
Whilst much of the focus will be on government announced changes:
- to the superannuation guarantee increase from 9% to 12% for employers;
- the reduction in the company tax rates and other small business concessions; and
- a resource super profits tax on natural resource projects.
Of more fundamental importance to the long term structure of the Australian tax system is those recommendations in the Henry Review which were not ruled out in their entirety.
The Henry Review put forward 138 recommendations with many of those recommendations including sub-recommendations. Of those recommendations, the government implemented three and ruled out 27.
The government acknowledged that their announcement yesterday was the first wave of their agenda to reform taxes and superannuation in Australia. However the government did go out of its way to state which recommendations of the Henry Review that they would not implement at any stage.
Whilst the government had stated that the other recommendations not put forward as policy are not existing government policy those recommendations are the direction of our future tax system.
There is a lot to be debated and a lot of policy and legislative frameworks to work through over the years ahead.
Recommendations ruled out
The following is a summary of the key recommendations ruled out by the government that were put forward by the Henry Review.
14 +
17 (c) |
Reduce the CGT discount, apply a discount to negative gearing deductions or change pre-CGT status for CGT |
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| 37 |
Remove the benefits of dividend imputation |
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| n/a |
Align the preservation age with the pension age |
Not a Henry Review recommendation but put forward in Cooper Review
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| n/a |
Never increase the rate or broaden the base of the GST |
Not within scope of Henry Review but reaffirmed
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| n/a |
Never remove tax free super payments for the over 60s |
Not within scope of Henry Review but reaffirmed
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Possible changes
The following is a summary of the key recommendations not ruled out by the government that were put forward by the Henry Review and by implication are up for consideration.
A1 Personal Income Tax
2 |
Increase in the tax free threshold for individuals to $25,000 and apply a constant marginal rates of tax for most taxpayers. |
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9 |
Fringe benefits tax that is attributable to individuals should be taxed in the hands of the individual. Any fringe benefits that are not attributable to an individual continue to be taxed in the hands of the employer. |
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9(b) |
The statutory formula will contain a single statutory rate of 20% regardless of the kilometres travelled. |
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10 |
There will be further changes to the alienation of personal services income. |
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11 |
Individuals will be subject to the choice of adopting a standard deduction percentage in relation to their income or using their own deductions subject to full substantiation. |
The aim is to reduce the requirements for individuals to lodge income tax returns.
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12 |
A tighter nexus between the deductibility of expenses and its role in producing income.
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This is one of the most fundamental recommendations in relation to personal income tax and highlights the possibility of having a scheduler nature of assessing income with expenses allocated or quarantined to the types of income it derives. This could also be the end of negative gearing. |
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A2 Retirement Incomes
| 18 |
No tax on super contributions. Employer contributions treated as income of the employee and taxed at the marginal rate with a flat rate refundable tax offset. |
Will change the way superannuation contributions are taxed. They will no longer be taxed to the super fund directly but will be included in the individual assessment income and taxed at their marginal rate of tax.
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| 18 (a) |
The $25,000 cap on concessional contributions to be maintained but increased to $50,000 for those over 50. |
Implemented in part. Limited to super balances of <$500k. |
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| 19 |
The rate of tax for super funds will be 7.5% with no discount for CGT and no pension income exemption. |
The loss of the pension exemption will impact retirees. |
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B1 Company and Other Investment Income
| 27 |
The company tax rate to be reduced to 25%. |
Implemented in part. |
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| 31 |
Companies will be allowed to carry back losses with the refund limited to the existing franking account balance. |
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| 33 and 34 |
Australia will move to a 0% withholding tax on interest for both financial institutions and double tax treat countries. |
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B2 Business Entities
| 36 |
The current trust rules will be updated and re-written. |
This will have significant impact in relation to the way in which Australian trusts both fixed and discretionary trusts are taxed. |
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Whilst we are only taking the first steps on a very long road of further tax reform in this country the Henry Review should be seen as a critical document in determining the direction of policy makers over years to come.
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