2 May 2010 - DKP _ Co Chartered Accountants by linxiaoqin

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									2 May 2010




   Australia's Future Tax System Review

        Review of Government taxation
          announcements following
            the ‘Henry’ Tax Review


                                             Prepared by




                                                                                                                          DKP & Co Chartered Accountants
                                                                                                        Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                    T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

         Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Government agenda items following ’Henry’ tax review


  It’s the 2nd of May 2010, and two years from its birth in 2008 and 1,500 submissions later, government
  and treasury have just released over 1,000 pages of proposals and recommendations on how Australia’s
  future tax system should look.

  Much of the submissions made by Treasury as chaired by Ken Henry have not been adopted by this
  government (for now), however we do have an insight in to how both Treasury thinks, and the current
  policy mindset of the current government.

  From a practical and medium term perspective, this is what we can expect to appear on the government
  landscape over the next few years:

   •     Increased Small business instant capital expenditure write-off amount and simplified depreciation

                                                  •       Reduction in company tax rate

                                •         Early start on a lower company tax rate for small business

                                           •      Establishment of State Infrastructure Fund

                     •              Phased increase superannuation guarantee from 9 to 12 per cent

                        •            Extend the superannuation guarantee from age 70 up to age 75

                    •               Refund of superannuation contributions tax for low income earners

                            •         $50,000 concessional cap for super balances under $500,000

                                                   •       Resource Exploration Rebate

                                      •        Introduction of a 40% Resource Super Profits Tax

  Of these proposals (not legislation), many rely on the introduction of the 40% Resource super profits
  tax—a potential political nightmare for any government relying on votes from resource rich states!

  More detail on each of these proposals is provided in our review below.

  We also provide some of the other points coming out of Henry’s review (including a proposal to abolish
  stamp duties, and increase land taxes) - which although haven't been accepted by the current
  government—are certainly worth noting for future tax system changes.

  With the upcoming Federal and state budgets, it will be exciting to see how our tax system will be
  reformed, and more importantly—how and what Treasury and government consider to be the new ‘tax
  base’.

  We provide the following summary of the 1,000+ page review, and trust that it provides some insight in to
  how the future tax system will be designed. Should you require any additional information on any aspect
  of this tax review, please contact our office.
                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Reduction in the company tax rate and earlier start for small business company tax reduction


  In order to drive investment, and long term economic growth the company income tax rate will be
  reduced to 29 per cent for the 2013-14 income year and to 28 per cent from the 2014-15 income year, in
  conjunction with the introduction of the Resource Super Profits Tax (RSPT).

  A reduction to 29 per cent for 2013-14 and then to 28 per cent from 2014-15, in conjunction with the
  introduction of the RSPT. This proposal relies on passing the 40% super resource tax—we must wait
  and see how this ones plays in the political arena!

  Provided RSPT is passed, it is proposed that the company tax rate will be cut to 29 per cent for the 2013-
  14 income year and to 28 per cent from the 2014-15 income year.


  Small business early reduction

  Government proposes to reduce the company tax rate to 28 per cent for eligible small business
  companies from the 2012-13 income year.

  Small business companies will have a lower tax rate than other companies until the reduction of the
  general company tax rate to 28 per cent in 2014-15.

  It is the governments intention to have a reduction in company tax facilitate:

  • an increase the cash flow of eligible small business companies; and

  • enable small business companies to reinvest more of their profits back into the company to expand and
  grow their businesses.

  We note that in the media, we hear that the reduction in tax rate was to be used by small business to pay
  for an increase in superannuation guarantee rates.

  It appears that these two items are effectively designed to have resource rich organisations ’subsidise’
  small business operators, who in turn are required to contribute higher levels of superannuation for
  employees.

  This is an interesting policy design and political equation.




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010


Small business instant tax write off for eligible assets and Introduction of Resource Super
profits tax

  With effect from 1 July 2012, government proposes its intention to expand the existing capital allowance
  concessions available for small businesses.

  Government proposes to:

  • allowing small businesses to immediately write-off assets valued at under $5,000 (this is up from
  $1,000 under the present law); and

  • allowing small businesses to write-off all other assets (except buildings) in a single depreciation pool
  at a rate of 30 per cent. Currently, small businesses allocate assets to two different depreciation
  pools.


  This measure will assist capital intensive small businesses via the increase in the write-off threshold to
  $5,000.

  It is government view that this proposal will:

  • increase their cash-flow by deferring their tax liabilities;

  • reduce compliance costs by removing the requirement to calculate depreciation allowances and track
  assets for depreciation; and

  • make asset ownership more attractive than leasing or debt financing.


  Resource Super Profits Tax

  Government proposes to introduce a Resource Super Profits Tax (RSPT) 1 July 2012 at a rate of 40 per
  cent on profits made from the exploitation of Australia’s non-renewable resources.

  The RSPT will replace the crude oil excise, and operate in parallel with State and Territory royalty
  regimes.

  Projects within the existing Petroleum Resource Rent Tax (PRRT) will have the (irrevocable) option of
  opting into the RSPT or staying in the PRRT.

  Under the RSPT a refundable credit for royalties paid to State and Territory Governments will be
  available.

  It is proposed that an exemption from the RSPT in respect of low value minerals or micro businesses will
  be provided.

  This is perhaps the most critical items coming out of today’s government announcements, as many of the
  changes proposed are directly linked to revenue raised by this proposal.



                                                                                                                                 DKP & Co Chartered Accountants
                                                                                                               Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                           T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

                Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



State (government) infrastructure fund and Resource exploration rebate


  Government proposes to provide States and Territories governments with a new infrastructure fund.

  Government intends to make infrastructure funding a permanent structural feature of State and
  Commonwealth budgets.

  • The infrastructure fund will be paid to the States each year, with an initial total amount of
  $700 million in 2012-13.

  • Funding will be distributed in a manner which recognises that resource rich States face large
  associated infrastructure demands.

  This fund is intended to develop infrastructure like ports and roads, which are crucial for all Australian
  industries, and workers.

  It appears that the RSPT raised will fund resource-rich states, who will receive relatively more funding
  under this proposal to support investment in infrastructure to assist development of the resource industry.


  Resource exploration rebate

  It is proposed that 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 2011. As part of this measure,
  the definition of exploration expenditure will be expanded to include expenditure incurred in exploring for
  geothermal energy.

  In order to avoid the complexity of defining the concept of an ‘Australian small listed exploration company’
  in the tax law, all companies will be able to access the Resource Exploration Rebate, .

  Some features of this proposal includes:

  1.   Expenditure incurred in exploring or prospecting for minerals, petroleum or quarry minerals can be
  immediately deducted, subject to the taxpayer passing certain tests. In addition, expenditure incurred on
  depreciating assets that are first used for exploration can also be written off immediately by the entity.

  1.    For companies with little or no taxable income, the existing deductions will add to tax losses that
  are carried forward and offset against future income.




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010


Raising the superannuation guarantee age limit from 70 to 75 and Government contribution
for low income earners

  An important announcement for those aged between 70 and 75 is the proposal to increase the SG age
  limit from 70 to 75, with effect from 1 July 2013.

  This means that:

  • Workers aged 70 to 74 will be eligible to have SG contributions made on their behalf.

  • The new SG age limit will match the age limit for voluntary and self-employed contributions.

  Currently, the SG only applies to people aged up to 70. In contrast, employers can make voluntary
  deductible superannuation contributions for employees under 75, and self-employed people can make
  deductible contributions until they turn 75.

  Individuals aged from 70 to 74 are less likely to be able to negotiate voluntary superannuation
  contributions with their employers—hence the compulsory nature of this measure.

  The 1 July 2013 start date allows employers time to negotiate future wage arrangement.


  Government contribution for low income earners

  Government proposes to provide a superannuation contribution of up to $500 annually for low income
  earners, with effect from 1 July 2012.

  Currently all concessional superannuation contributions are taxable in the fund at a flat rate of 15 per
  cent. As a result, low-income earners receive little or no concession, relative to their personal income tax
  rate.

  The amount payable under this measure will be calculated by applying a 15 per cent matching rate to the
  concessional contributions made by or for individuals on adjusted taxable incomes of up to $37,000, with
  an annual maximum amount payable of $500.

  The amount will be paid into a superannuation fund of an individual.

  Concessional superannuation contributions made from 1 July 2012 will be eligible with the first
  Government contribution paid in 2013 (after the individuals 2011-2012 income position is determined,
  and is below the threshold).




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010


Superannuation (concessional) contribution caps and Increasing the Superannuation Guar-
antee rate to 12 per cent

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

  This doubles the cap of $25,000 which is scheduled to apply from 1 July 2012.

  This will allow these individuals to ‘catch up’ on their superannuation contributions when they are most
  able. It will particularly benefit those who have had periods outside the workforce.

  The measure will improve the equity of the existing superannuation system by targeting concessions
  towards those with the greatest need to build their retirement savings.

  Government expects that by 2020, an additional $10 billion per year in private saving will be available for
  investment into the Australian economy, including into nation-building infrastructure; and Australia’s total
  superannuation savings are projected to increase by $500 billion by 2035.


  Increasing the Superannuation Guarantee rate to 12 per cent

  There will be a phased increase of the current 9 per cent Superannuation guarantee support to 12 per
  cent with a three year lead time from its formal legislative announcement.

  This will allow employers to take the increased SG contributions when negotiating future wage
  arrangements with employees. Government expects that the company tax reductions, and the significant
  lead time will help mitigate employer concerns.

  The proposed Superannuation guarantee rates are as follows:

  Year            Rate (%)
  2013-14         9.25
  2014-15         9.5
  2015-16         10.0
  2016-17         10.5
  2017-18         11.0
  2018-19         11.5
  2019-20         12.0




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Henry Tax review—Recommendation for Australia’s future tax system


  These announcements by the treasurer follows a detailed review by Ken Henry tabled today.

  In this detailed report, it was recommended that future taxation revenue raising should be concentrated
  on four tax bases, including:

  1.   Personal income, assessed on a wider base;
  2.   Business income, with more growth-oriented rates and base;
  3.   Private consumption, through broad, simple taxes; and
  4.   Economic rents from natural resources and land.

  The detailed report recommends that the following taxes should be abolished and their revenues
  replaced by taxes applying to the four robust and efficient tax bases described above:

  1.   Insurance taxes;
  2.   Payroll tax;
  3.   Property transfer taxes;
  4.   Stamp duties on the purchase of motor vehicles;
  5.   Resource royalties, replaced by the rent tax;
  6.   Luxury car tax;
  7.   The tax on superannuation contributions in the fund;
  8.   Income taxes on all government pensions, allowances and benefits; and
  9.   Fuel and vehicle registration taxes.

  We now describe some of these proposals in greater detail below. Please note that these are just
  proposals, and are not necessarily accepted by government.

  Superannuation—retirement income reform

  The tax on superannuation contributions in the fund should be abolished, increasing saving from currently
  taxed contributions by 17.5 per cent.

  •    Employer superannuation contributions should be included in employee taxable income. Subject to
       annual limits, all contributions would attract a tax offset payable to contributors. This suggestion
       appears relatively complex and would require detail matching of superannuation members tax rate
       with the superannuation fund.

  •    All income and gains of superannuation funds should be taxed at a rate of 7.5 per cent, further
       increasing superannuation savings of members.

  •    The $50,000 transitional cap for contributors aged 50 or older should be continued.


  Housing affordability

  Government should place priority on a review of institutional arrangements (including administration) to
  ensure zoning and planning do not unnecessarily inhibit housing supply and housing affordability.

                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Henry Tax review—Recommendation for Australia’s future tax system



  Goods and services tax

  The Government should consider making greater use of GST-free business-to-business transactions or
  reverse charging, provided the potential compliance cost savings outweigh the additional complexity
  costs and risks to revenue. This proposal would make a shift towards a value add tax as a final tax, and
  provide some transaction reporting savings for GST registered businesses. This measure appears
  logical.


  Payroll tax

  State payroll taxes should eventually be replaced (i.e. repealed) with revenue from more efficient broad-
  based taxes that capture the value-add of labour.


  Land tax and conveyance stamp duty

  Ideally, Henry states that there would be no role for any stamp duties, including conveyancing stamp
  duties, in a modern future Australian tax system.

  The removal of stamp duty should be achieved through a switch to tax levied on broad consumption or
  land bases. The land tax base should be broadened to eventually include all land.

  If this occurs, low-value land, such as most agricultural land, would not face a land tax liability where its
  value per square metre is below the lowest rate threshold.


  Company and investment taxes

  The company income tax rate should be reduced to 25 per cent over the short to medium term.
  Government supports a phased reduction to 28 per cent.

  The capital allowance arrangements for small business should be streamlined and simplified, by:
  (a) allowing depreciating assets costing less than $10,000 to be immediately written-off; and
  (b) allowing all other depreciating assets (except buildings) to be pooled together, with the value of the
  pool depreciated at a single declining balance rate.

  Government proposed that the immediate write off threshold be $5,000 for small businesses, not $10,000
  as proposed by the ‘Henry’ tax review.

  The small business entity turnover threshold should be increased from $2 million to $5 million, the $6
  million net asset value test should be adjusted.

  Companies should be allowed to carry back a revenue loss to offset it against the prior year’s taxable
  income, with the amount of any refund limited to a company’s franking account balance.

                                                                                                                                 DKP & Co Chartered Accountants
                                                                                                               Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                           T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

                Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Henry Tax review—Recommendation for Australia’s future tax system



  Personal Taxation—Key features and recommendations

  A much higher personal tax-free threshold, around $25,000, should replace the current thresholds and
  offsets.

  • All pensions, allowances and other transfer payments should be tax-free.

  • A simple transparent two-step 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.

  • A major change proposed is that progressivity of the tax system should be enhanced by including all
  forms of work remuneration in personal tax returns — including employer superannuation contributions
  and the main fringe benefits.

  Remuneration for work, including wages, salaries, fringe benefits and employer superannuation
  contributions, would be taxed in a more consistent manner and with few exemptions.

  Providing people with their own online tax and transfer client account, and sending people default pre-
  filled tax returns—reducing the time of complying with income tax legislation.

  Fringe benefits that are readily valued and attributable to individual employees should be taxed in the
  hands of employees through the PAYG system. Other fringe benefits, including those incidental to an
  individual’s employment, should remain taxed to employers at the top marginal rate (and non-reportable
  for employees).


  Discount—Taxing income from savings

  Recommend a broad 40 per cent discount for income from bank deposits, bonds, rental properties, and
  capital gains and for certain interest expenses.

  This would provide a major incentive to save, and be a more tax effective way of dealing with surplus
  funds by cash holders.


  Comments regarding Small Business CGT concessions

  The active asset 50 per cent reduction and 15-year exemption concessions should be abolished.

  The lifetime limit for the retirement exemption should be increased! This announcement is worth noting
  for all small business owners.




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees
2 May 2010



Henry Tax review—Recommendation for Australia’s future tax system



  Treatment of business entities and their owners

  The current trust rules should be updated and rewritten to reduce complexity and uncertainty around their
  application.

  Dividend imputation should be retained in the short to medium term.


  Tax concessions for not-for-profit organisations

  FBT concessions should be replaced with direct government funding, to be administered by an Australian
  government portfolio agencies or the charities commission.

  Simple and efficient tax arrangements should be established for clubs with large trading activities in the
  fields of gaming, catering, entertainment and hospitality.

  The capped FBT concessions should be phased out over ten years. During this time, the value of the
  FBT caps would gradually be reduced. Reportable fringe benefits for affected employees (that is, those
  benefits that are easily valued and attributed) would be exempt from income tax up to the relevant cap,
  and taxed at the employee’s marginal tax rate above the FBT cap.


  Road transport taxes

  Governments should analyse the potential network-wide benefits and costs of introducing variable
  congestion pricing on existing tolled roads (or lanes), and consider extending existing technology across
  heavily congested parts of the road network.

  Development of mass-distance-location pricing for heavy vehicles, to ensure that heavy vehicles pay for
  their specific marginal road-wear costs.

  Where road freight is in direct competition with rail that is required to recover its capital costs, heavy
  vehicles should face an additional charge on a comparable basis, where this improves the efficient
  allocation of freight between transport modes.


  Alcohol taxation

  All alcoholic beverages should be taxed on a volumetric basis, which, over time, should converge to a
  single rate, with a low-alcohol threshold introduced for all products.




                                                                                                                                DKP & Co Chartered Accountants
                                                                                                              Level 3/454 Collins Street, Melbourne Victoria 3000
                                                                                                          T 03 8319 4017 F 03 8648 6307 E info@dkpco.com.au

               Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees

								
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