On 2 May 2010 the Commonwealth Government released the much anticipated ‘Australia’s Future Tax System Report’ (AFTSR), more commonly known as the ‘Henry Review’, together with its response.
The AFTSR has 138 recommendations and the Government has classified them in one of three ways. Recommendations which will:
The Government has initially focussed on the resources sector and superannuation. The company tax rate will also be reduced and there are benefits for small businesses. Here is a brief summary of the recommendations which will be implemented over time:
Resources
Resource Super Profits Tax (RSPT)
The RSPT (40%) will be introduced on 1 July 2012 on profits from exploitation of Australia’s non-renewable resources and will apply to all legal entities directly involved in resource extraction activities.
The RSPT will be calculated separately for each project interest. Defining the ‘project’ may be difficult if different ore bodies are mined on the same lease or in the joint venture context.
Payments of RSPT will be deductible for income tax purposes and projects within the Petroleum Resource Rent Tax (PRRT) regime will have the option of irrevocably electing into the RSPT or remaining with PRRT. RSPT will replace the crude oil excise and operate in parallel with State and Territory royalty regimes (although taxpayers will be eligible for a refundable credit for these royalties).
Resource Exploration Rebate
This will be a refundable tax offset available to all companies at the prevailing company tax rate, for exploration expenditure incurred on or after 1 July 2011.
The definition of exploration expenditure will be expanded to include expenditure incurred in exploring for geothermal energy.
Superannuation
Superannuation Guarantee Rate
The rate will increase from the current 9% to 12%, phasing in from 1 July 2013 to 1 July 2020.
Superannuation Guarantee age limit increased to 75
From 1 July 2013 the Superannuation Guarantee age limit will be raised from 70 to 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 (or tax deductible) superannuation contributions. This will maintain the current contribution limits for the over 50s that were due to revert to $25,000 from 1 July 2012.
Eligible individuals under 75 will still be able to make non-concessional contributions to superannuation up to $150,000 per annum. Those 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.
Business Taxation
Reduction in the Company tax rate to 28%
The timing of this will depend on whether an entity qualifies as an ‘eligible small business company’. If so the reduction will be effective from the 2013 income year. Otherwise the rate will be phased in (29% for 2014 and 28% from 2015).
Small Business Asset write-off
From 1 July 2012, small businesses will be able to immediately write-off assets valued under $5,000, (currently $1,000) and all other assets (except buildings) will be written off in a single depreciation pool at a rate of 30%, (currently small businesses allocate assets to two pools). This will remove the need for small business to monitor two different depreciation pools and so, simplify their tax affairs.
Dr Henry’s report provides Australia with a reform agenda for the decades ahead. We will continue to monitor and report on the Government’s progress in implementing these recommendations but if you have any questions regarding the report and implications for your business, please contact Kevin Shields, Tax Partner, on (08) 9288 6909 or kevin.shields@lavanlegal.com.au.
