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Tuesday, May 4, 2010

The Henry Review – what was it all about, and why was it such a fizzle?

... a "burbs breakdown"

You can only imagine how devastated I was to learn that The Henry Tax Review was being released at the same time I’d be sitting in a movie cinema. What could I do? The tickets were booked and pre-paid; the only way I could mark the occasion was to at least don my brown cardy for the outing.

So there I was, sipping my sauv blanc and watching Ironman 2 (seriously, how does Robert Downey Jr abuse his body with drugs and alcohol for years, and still end up looking like that?) when I received a text message from a colleague telling me that not only were my beloved Blues being smashed by Collingwood, but that The Henry Review was an enormous let-down.

Big sigh of relief (and gulp of wine) from me, as I can assure you that there were a number of nasties in the report I was a little bit worried might be passed. So what's the "burbs breakdown" on the review?

So why the fuss?

For those of you not in the “biz”, last Sunday, Dr Ken Henry (Treasury Secretary), released his long awaited Tax Review comprising a whopping 138 recommendations for tax reform. Accountants and Financial Planners all over the country had been waiting on tenderhooks to take a look at the final report, and to hear the government’s response.

Poor Dr Ken must have felt a tad deflated when he learned the government had decided to only adopt a small handful of the proposals, had rejected about 30 of the proposals outright, and flagged the rest for future consideration.

And the winners are….

- The Superannuation Guarantee Charge (SGC) that employers are required to pay to employees, will increase from 9% to 12%. BUT it will be in increments between now and 2020, so don’t hold your breath.

- As of 2013, SGC will be paid to all employees up to age 75 (currently age 70).

- Individuals earning less than $37,000 pa will be eligible a special super contribution from the government (maximum $500) from 1 July 2012;

- Individuals aged 50+ with super balances of less than $500,000, will be allowed to continue to make concessional super contributions up to $50,000 pa past 30 June 2012. Concessional contributions include SGC, additional employer contributions, and salary sacrifice.

- The company tax rate will reduce from 30% to 28% by the 2014/2015 financial year (2012 for small businesses), and from 1 July 2012, small businesses with less than $2 million turnover will be allowed to write-off expenses for assets worth $5,000 or less (currently it’s $1,000 or less).

The Government will introduce a “Resource Super Profit Tax” of 40% from 1 July 2012 on profits made from exploitation of non-renewable resources. This is expected to raise $9-12 billion in additional tax revenue for the Government from large resource companies. I guess this qualifies as the “biggy”, and it will be interesting to hear how WA responds. Not happy Jan?

To soften the blow, there will be a “resource exploration rebate” set at the company level, for exploration expenditure incurred on or after 1 July 2011.

The Wrap Up

To be honest - much ado about nothing. The few proposals that have made it through so far are largely positive (unless you’re a large resources company), but really don’t make a huge impact. Perhaps it’s a case of “watch this space” closer to election time….

Hope that helps breakdown the current fuss over The Henry Tax Review.

Talk soon,

PS. If you're interested in reading more, I found this update by Colonial First State to be fairly readable.