The Henry Tax Review’s Impact on Small Business

Who’s HENRY? The Henry Tax Review

The Federal Government has undertaken a comprehensive review of the tax system with the goal of simplifying it. Officially named “Australia’s Future Tax System Review,” the review has become known as “The Henry Tax Review” as the review panel was headed up by Treasury Secretary Dr. Ken Henry. The Henry Tax Review is the most comprehensive review of the tax system since the introduction of GST in 2000.

The panel’s task was to review the current tax system and make recommendations to position Australia to positively deal with the demographic, social, economic and environmental challenges of the future. The panel received approximately 1500 formal submissions outlining issues and concerns which helped the panel shape its recommendations. The Review Panel presented the 1000-page final report to Treasurer Wayne Swan in December 2009. On 2 May 2010 the Government released the report and its response.   How It Works: The Government has adopted a number of proposed changes to the tax system. However, these changes still must be legislated.  

What does The Henry Tax Review mean for SMEs?:

There are a wide range of proposed changes, however following are the main areas that will directly impact SMEs:   1. Superannuation guarantee rate to rise from 9% to 12% by 2020 From 1 July 2013 it is proposed the super guarantee rate will increase in increments of 0.25% in the first two years, and increments of 0.5% until 12% is reached in 2020. It is important to factor in on forward budgets and staff salary packaging to fully understand this impact on your business.   2. The superannuation guarantee contribution age limit will increase from 70 to 75. This will only affect small businesses that are employing people over 70 from 1 July 2013.   3. Company tax to be cut from 30% to 28% from 1 July 2012 for SMEs. For all other businesses this change takes effect in 2013/14. The government is hoping that the company tax cut will offset the added cost of additional super. However, it will depend on you profit and staffing costs. Ask your accountant to work this out. Note: this tax rate reduction ONLY affects SMEs that are Companies. Sole traders, partnerships or trusts are not affected, which happen to be 70% of small businesses. (Talk to your tax advisor to see if it is beneficial for you to change to a company structure).   4. Depreciation – immediate “write offs” increases to $5,000 from 1 July 2012. Currently $1,000, raising this to $5,000 will simplify tax reporting, as SMEs would need to keep fewer depreciation schedules – meaning less paperwork!   5. The superannuation concessional contributions cap will increase to $50,000 for people with less than $500,000 in superannuation from 1 July 2012. Whilst this isn’t specifically for SMEs, it means that anyone under the age of 65 with less than $500,000 in super will be able to contribute to up $50,000 pre-tax money to their superannuation. This was the case a few years ago, but the Government reduced the limit to $25,000. This is great news, as people should not be penalised if they want to put additional money away for their retirement. Note that this is the first wave of proposed reforms. The Government may announce more details later. With a nearing election a strong possibility there is little doubt they want to keep a few gems up their sleeve.   YOUR SAY:

• If these proposed changes in the Henry Tax Review are legislated, how will they affect YOUR business?
• Do you think these are progressive and good for Australia overall?