Government response to the Henry Report

Transcription

1 Government response to the Henry Report 1

2 The Government s response to the Henry Report: Stronger-Fairer-Simpler - A tax plan for our future Contents Government Announcements Superannuation 1. Increasing the Superannuation Guarantee rate to 12% 2. SG age limit increase from 70 to Low income earners Government contribution 4. Changes to the Concessional Contributions cap 5. No change to non-concessional contributions cap Taxation 1. Cutting the company tax rate 2. Small business instant asset write-off 3. Resource Super Profits Tax 4. Resource exploration rebate Henry Recommendations 1. Retirement and superannuation 2. Personal taxation 3. Social security Henry Recommendations rejected by the Government 1. Social security 2. Superannuation and retirement 3. Taxation Introduction The Rudd Government yesterday released Stronger Fairer Simpler - A tax plan for our future. This plan is in response to the Henry Tax Review report that was presented to the Government in December Treasurer Swan in the media late yesterday was at pains to stress that this is a tax plan for the next 10 years and can not be implemented all at once. What has been announced are some sweeteners for superannuation including lifting the SG rate to 12% and a government contribution for low income earners. The lynch-pin of the plan, however, is the Government s intention to introduce a Resource Super Profit Tax of 40%. This is expected to raise $9-12 billion in additional tax revenue for the Government from large resource companies and will assist in funding the other measures announced. A consultation process will start almost immediately on this measure so it is unlikely we will see legislation introduced into Parliament prior to the upcoming Federal election. In this bulletin, we have outlined the critical components of this plan, we have also outlined the key recommendations or directions outlined in the actual Henry review in key areas as well as a list of Henry recommendations that the Government has stated that they will not implement. Astute readers will note that the measures the Government has announced do not necessarily align with the Henry recommendations. Similarly, Rudd stated that they will have more to say on a number of other areas considered by the review, especially making tax time simpler for everyday Australians, improving incentives to save and improving the governance and transparency of the tax system. What has the Government in store for us when they hand down the Federal Budget next week? 2

3 Government announcements: Superannuation 1. Increasing the Superannuation Guarantee rate to 12% Start date 1 July SG age limit increase from 70 to 75 Start date 1 July 2013 The Superannuation Guarantee (SG) rate will be increased from 9% to 12% by 1 July This will commence with a 0.25% increase for the 2013/14 financial year. The table below illustrates the proposed time table for the full 3% increase. Financial Year SG Rate (%) 2013/ / / / / / /20 12 In the long term, employees will have more savings in retirement, placing less pressure on the Age Pension. The decision to defer the commencement of the rate increase until 2013/14 recognises that employers and employees will need time to factor these increases into their future wage negotiations. The Superannuation Guarantee (SG) age limit will be raised from 70 to 75. Currently, compulsory SG only applies to those aged less than 70. This proposed change is due to commence on 1 July The increase to age 75 aligns the SG age limit with the age limit for personal and voluntary employer contributions, simplifying superannuation contribution requirements. Provides greater incentive for mature workers to remain in the workforce. The deferred start date allows employers and employees need time to factor these increases into their future wage negotiations. 3. Low income earners Government contribution The Government plans to introduce a Government superannuation contribution for low income earners. Individuals will need to have an adjusted taxable income (ATI) of less than $37,000 to receive up to a maximum of $500 per year. The Government contribution would be calculated as 15% of the concessional contributions paid by or for individuals with an ATI less than $37,000. The maximum contribution of $500 is equivalent to the tax an employee with an ATI of $37,000 would pay on their SG contributions calculated as follows. $37,000 x 9% (SG rate) = $3,330 x 15% (tax rate deducted by super fund) = $ Note that by 1 July 2012, when this measure is proposed to commence, the marginal rate of tax for individuals earning between $6,001 and $37,000 will be 15% (this income tax threshold change is already legislated to apply from 1 July 2010). The first Government contributions are expected to be paid into an eligible individual s superannuation account during 2013/14 for concessional contributions made during 2012/13. This payment lag is similar to the existing Government Co-contribution arrangements. Individuals may be eligible for both the low income earners Government contribution and the existing Government Co-contribution. This measure effectively means for eligible individuals the 15% tax on concessional contributions will be refunded making super an attractive savings vehicle for all taxpayers; not just those on a marginal tax rate greater than the super fund tax rate. It is unclear whether this measure is limited to SG or all concessional contributions. Adviser Tips 3

4 The Government has proposed a matching rate of 15%; not the actual super fund s tax rate. Some superannuation funds may actually deduct tax at a rate of less than 15% (because of the effect of CGT concessions, tax deductions available to the fund or imputation credits). In these cases the tax benefits of contributing to super would be even greater. 4. Changes to the Concessional Contributions cap Currently the transitional concessional contributions cap is $50,000 per annum for those aged 50 and older. This transitional cap will expire on 30 June It will, however, now be replaced with a new concessional contributions cap from 1 July 2012 for individuals aged 50 or over who need to make catch-up contributions. Under the new concessional contributions cap, individuals will be able to make (or have made on their behalf) concessional contributions of $50,000 pa provided they are: aged 50 and over; and have total superannuation balances of less than $500,000. While the new concessional contributions cap for those aged 50 and over is not as generous as the current one, it is better than not having one at all. It will provide benefits to many: undertaking transition to retirement strategies; who delay focusing on building up their retirement assets until they have paid off their mortgage and educated their children; and who may have made unwise investment decisions, or experienced a down turn in investment markets. Clients who reach age 50, but who have total superannuation of over $500,000 will not benefit from this change. The Government is intending to consult with industry on how the $500,000 balance will be calculated. APRA regulated funds are required to value assets at a net market value on a regular basis, while SMSFs are not legally required to do so (though the ATO prefers this method). We would expect that the Government would accept and implement the Cooper Review Panel recommendation to legislate that all SMSFs be required to value their assets at net market value on an annual basis, even if only to access this new concessional contributions cap for eligible members aged 50 or over. 5. No change to nonconcessional contributions cap The Government has reaffirmed the existing level of the non-concessional caps. 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 who are under 65 can also bring forward two years worth of non-concessional contributions, allowing them to contribute up to $450,000 of non-concessional contributions in any three-year period. No change. 4

5 Government announcements: Taxation 1. Cutting the company tax rate The company tax rate will reduce to 28% as illustrated in the table below: Small business (turnover less Other businesses than $2 million) 2010/11 and 2011/12 30% 30% 2012/13 28% 30% 2013/14 28% 29% 2014/15 and later years 28% 28% The Government intends to consult on exposure draft legislation and has stated that relevant issues for consultation include instalment and franking arrangements. 2. Small business instant asset write off Start date 1 July 2012 Currently small businesses (those with annual turnover of under $2 million) can immediately write-off expenses for assets worth up to $1,000 in value. From 1 July 2012, small businesses will be able to immediately write-off assets which have a value of less than $5,000. Additionally, small businesses will be able to have one depreciation pool for all other assets (excluding buildings) and write-off this pool of assets at 30%. Currently, they allocate assets to two different depreciation pools. This will: simplify depreciation calculations and reduce compliance costs by removing the requirement to calculate depreciation allowances and track assets for depreciation; increase their cash-flow by deferring tax liabilities; and make asset ownership more attractive than leasing or debt financing. It is worth noting that the Henry review recommended the $2 million threshold should be increased to $5 million and that small businesses should have the ability to write off assets with a purchase value of less than $10, Resource Super Profits Tax The Government will introduce a Resource Super Profit Tax of 40% from 1 July This is expected to raise $9-12 billion in additional tax revenue for the Government from large resource companies. Consultation on this measure has commenced and will be finalised by the end of August. Once finalised legislation will be drafted. 4. Resource exploration rebate The measure will provide a refundable tax offset at the company level, set at the prevailing company tax rate, for exploration expenditure carried out in Australia. It will be available for exploration expenditure incurred on or after 1 July As part of this measure, the definition of exploration expenditure will be expanded to include expenditure incurred in exploring for geothermal energy. All companies will be able to access the Resource Exploration Rebate. 5

6 Henry Report The Henry Report was released in its entirety to the public yesterday. The report is over 1,000 pages long and contains 138 key recommendations. Outlined below are the key directions recommended by the Henry Review Panel for retirement savings, personal taxation and social security. While the Government has not addressed many of these recommendations today, we must also wait to see what will be announced in the Federal Budget due to be handed down next week. 1. Retirement and superannuation The Henry report made a number of recommendations in relation to the future direction of Australia s superannuation and retirement system. Specifically: Tax on superannuation contributions in the fund should be abolished and instead employer superannuation contributions would be included in an employee s taxable income. Subject to annual limits, all (concessional and non-concessional) contributions would attract a tax offset payable to the employee or individual A superannuation fund s income and capital gains would be taxed at 7.5% The transitional concessional contributions cap for those aged 50+ should continue Superannuation balances should be included in Age Pension means tests on the same basis as other savings (status quo) The development of longevity products should be encouraged and the Government should consider offering such products itself. 2. Personal taxation The Henry Report states that the personal income tax system will remain Australia s largest source of tax revenues and that an opportunity exists to greatly simplify personal tax and to make it more transparent, easier to comply with and more robust. The personal tax system also needs to be better coordinated with the transfer (ie. social security) system. The key directions outlined by the report are: A much higher personal tax-free threshold, around $25,000, should replace the current complex array of thresholds and offsets All pensions, allowances and other transfer payments should be tax-free A simple transparent tax scale should apply Deductions and offsets should be rationalised with most work-related deductions replaced by a standard rate of deduction linked to the level of income from work Income from work should be taxed on a more consistent basis, whether it comes from wages and salaries, fringe benefits or superannuation contributions. 3. Social security Henry s Pension Review (released in May 2009) outlined adequacy benchmarks for age, disability and carer pensions (which the Rudd Government addressed in the 2009 Federal Budget). Now the report states that these should be extended to other Government payments but must also address incentives to work. The key directions outlined by the Henry report in relation to social security are: Three levels of primary support payment should be established o Pensions for aged, disabled and carers o Lower-rate participation allowances for those of working-age o Assistance payments for young people and students Once Payments reach adequacy levels, they should be preserved by common indexation arrangements applied to each of the main payment types The relativity between single and couple payments should be improved across all payment types Assets tests should be abolished and a comprehensive means test base established for the main pension and allowance payments. Income from savings would be assessed in the form of deemed returns from assets. Family assistance should be paid through a single program based on the assessed additional costs of children and means tested with family taxable income on the same base as for income tax. 6

7 Henry recommendations rejected by the Government The following (by category) are Henry recommendations that the Government has stated it will NOT implement: 1. Social security Include the family home in means testing Require parents to work when youngest child turns 4 to access benefits Reduce safety measures for single income families Restrict eligibility to rent assistance for families Reduce indexation of the age pension Think of reducing pensioner and low income concessions for utilities, transport and other essential services Ask the States to charge market rent to public housing recipients 2. Superannuation and retirement Align preservation age with pension age Offer a government annuity 3. Taxation Introduce land tax on the family home Any changes to the tax system that harm the not-for-profit sector, including removing the benefits of tax concessions, raising the gift deductibility threshold or changing income tax arrangements for clubs Reduce CGT discount, apply a discount to negative gearing deductions, or change grandfathering arrangements for CGT Remove Medicare levy Remove the benefits of dividend imputation Introduce a bequests tax Abolish the Luxury car tax Index fuel tax to CPI Change alcohol tax in the middle of a wine glut and in the midst of an industry restructure 4. Miscellaneous Reduce overall remuneration of defence force personal The Government also re-affirmed that it will never increase the rate or broaden the base of GST or remove tax free superannuation payments for those individuals who are 60 or over. Disclaimer The information contained in this document dated 3 May 2010 has been given in good faith and has been derived from laws current at this date and our interpretation of them. It has also been devised from the 2010, Stronger Fairer Simpler - A tax plan for our future Ministerial statements, associated materials, and our interpretation of them. The taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice. This document is to be used as general information only and should not be considered a comprehensive statement on any matter and should not be relied upon as such. This document has been prepared without taking into account any individual objectives, financial situation or needs. No member of the Westpac Group, or the BT Financial Group, nor any of their employees or directors gives any warranty of accuracy or reliability nor accepts any liability in any other way, including by reason of negligence for any errors or omissions contained herein, to the extent permitted by law. This document may not be used or reproduced without the prior consent of the BT Financial Group. 7