The recommendations or variations thereof the incumbent Rudd-Gillard-Swan government will attempt to implement of the Ken Henry Tax Review are
- Lifting compulsory superannuation from 9 to 12 per cent by 2019-20
- More Government payments for low-income workers into their superannuation
- Compulsory super payments for those over 70 and concessions on contributions for those over 50
- A reduction in company tax from 30 to 28 per cent by 2015
- Small business to benefit from company tax cut from 2012
- Other write-off concessions for small business
- Miners to be hit with a 40 per cent tax on above normal profits
- An infrastructure fund to be paid to the states each year to start at $700 million in 2012
The core of today’s announcement is the resources profits tax. From 1st July 2012, mining companies will pay a tax of 40% on its profits which are designed to pay for a rise in superannuation to 12% by 2019/2020 and to cut the company tax rate down to 28% and most likely 25% in the future.
The mining industry is not being punished as it first may appear as they will receive 10% of the resource profits tax back as a resource exploration rate and the State based royalties they now pay refunded.
The Government has decided it will build on the $22 billion Nation Building for the Future package by establishing a new ongoing infrastructure fund, and make annual contributions starting at $700 million from 2012-13.
The best result seems to be for small business whereas currently they have keep a range of records and classify the assets they buy into a number of depreciation ‘pools’. Small items worth less than $1,000 can be immediately written off and others allocated to one of two depreciation ‘pools’ which are depreciated at either a 30 or 5 per cent rate depending on the life of the asset (half these rates in the year of purchase).
The Government will introduce instant write off for small business assets worth up to $5,000. This means many small business investments will be able to be written off in the year of purchase. Small businesses will also be able to depreciate all other assets (other than buildings) in a single pool, at a rate of 30 per cent. This means small businesses won’t need to do complex tax classification of different asset types. These changes will let small businesses write off many assets more quickly, increasing their cash flows at the time when they are investing to grow.
They will also move straight to the new 28 per cent company tax rate from the 2012-13 income year. This will provide a direct financial benefit (and, as a result, a cash flow benefit) and will act as an incentive for small business companies to retain profits to grow the company. Whilst other businesses will have to wait until the 2014/2015 tax year.
The superannuation changes will be phased in by 0.25% points in the first two tax years followed by a 0.5% points until the guarantee reaches 12%
The real plus to the superannuation changes is that from 1 July 2012 the Government will provide a contribution of up to $500 for workers with incomes up to $37,000. This ensures that no tax will be paid on superannuation guarantee contributions for those with incomes up to that amount in 2012-13. It will also allow older workers make twice the contribution what the current cap allows.
The government believes these changes are expected to increase average real after-tax wages by 1.1 per cent in the long-run. In current terms, this reform dividend is equivalent to having around an extra $450 per year in the pocket of a full-time worker on average weekly earnings and have a divident of 0.7% increase in the GDP in the long run.