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The Report takes a holistic and long term view of reform. Many of the recommendations are directional or to the effect that further consultation must be had. However, the Henry Review Panel has thoroughly addressed key issues that affect the Australian taxation system, including our reliance on the production generated from use of our natural resources.

There will be widespread disappointment that the Government's response was not stronger or more directly supportive of the Report, especially given the time taken to consider the Report (more than four months) and the substantial investment taxpayers have made in this process so far.

The Government has underpinned its acceptance of reform on the introduction of a new Resources Super Profits Tax (RSPT), so that the whole of the nation may benefit more from extracted resources. The resources sector will no doubt refute the country's capacity to continue to ride on the fortunes of the industry when investment into South America and Asia may become comparatively more attractive. The Government has indicated the RSPT is at the centre of its tax reform agenda, and indeed has stated that the delivery of all elements of the reform package will be contingent on the implementation of the RSPT.

The Report impacts all taxpayers. Significantly, there are detailed recommendations that reduce the tax burden on individuals and simplify compliance. Superannuation saving will be further supported.

The debate around change will continue. Tax reform arising from the Report will be a very significant part of our social agenda, and of business and investment planning, for years to come.

The many positive recommendations in the Report deserve support, and Grant Thornton will advocate for active adoption of measures that are sensible and beneficial.

What follows is our considered commentary and analysis of the Report, and the impact it will have on classes of taxpayers and, importantly, our clients. Please take some time to consider how the reform measures can benefit you.

Superannuation and retirement

The four adopted reforms are:

• Increase the Superannuation Guarantee Contribution (SGC) rate
  to 12%: this will occur via 0.25% increases in 2013-14 and 2014-15, and
  then 0.5% increases for each of the following five years until 2019-20
  - employers will suffer additional employment costs of between
  2.75% and 3% depending on their pay-roll tax rate
• A Government contribution for low income earners. The Government will make a contribution of up to $500 per annum, for those taxpayers earning less than $37,000 p.a. to ensure that no contribution tax is paid on SGC
• Higher concessional contribution cap of $50,000 p.a. retained (from 1 July 2012) for those over 50, but only for those with less than $500,000 superannuation. The current transitional cap of $50,000 was to end on 30 June 2012, reducing to $25,000
  - only 275,000 people will be
  impacted by this reform
• Raise the Superannuation Guarantee age limit to 75. Currently, SGC is not required to be paid for those over 70 years of age
  - only 33,000 individuals will be affected
  - employers will suffer increased employment cost of at least 12% for workers between 70 and 75

Treasury figures indicate that the above reforms will add $108,000 to a 30 year olds savings at retirement

Recommendations not yet acted upon

The Report included some significant recommendations which have not been as yet acted upon.

The Report recommends:

• taxing the individual on contributions rather than the fund. Rather than the current 15% tax, marginal tax rates would apply, less a flat-rate refundable tax offset
  - the offset of 15% would apply for contributions up to an annual cap of $25,000 ($50,000 for those over 50 years of age)- i.e. same as current caps
  - the rebate should replace the Government Co-Contribution and the Spouse Contribution Offset
• compulsory superannuation contributions should not be used in determining eligibility for income support or family assistance, and should not be used in the calculation of child support
• the rate of tax paid on earnings by super funds should be reduced from 15% to 7.5%. This would apply to capital gains, with no discount available. Imputation credits would still be available
• restrictions preventing those aged 75 or older from contributing should be removed. The work test for those aged over 65 should remain. No age restrictions should apply to those wishing to purchase longevity insurance from a prudentially regulated entity
• government should support the development of a longevity insurance market within the private sector, by issuing long-term securities, making data available to assist to calculate longevity risks, and removing prescriptive rules from superannuation laws that restrict product innovation
• increasing people's awareness of their retirement savings, so that they can better manage their superannuation, by:
  - ensuring superannuation guarantee contributions are paid at the same time as wages
  - requiring employers to report superannuation contributions to employees when they are made
  - introducing a method of linking superannuation records (e.g. using tax file numbers) to make it easier for people to manage their superannuation
  - creating a superannuation portal where people can interact with government agencies and find information on retirement savings. Over time, this recommendation should be extended to allow people to manage all their superannuation through one channel

While some of these reforms are welcome, the proposal to tax individuals on their contributions removes an incentive to save for retirement. It especially would affect those with inconsistent incomes.

What's been ruled out

The Government has stated that it will not implement some of the Report's recommendations at any stage. For superannuation and retirement income, the only recommendation completely ruled out is one suggesting that the Government should offer immediate annuity and deferred annuity products to the public.

In addition, the Government has re-stated its intention to retain tax-free status on super withdrawals after age 60.

Grant Thornton - 2 May 2010 - Henry Review 2010

© Super Matters, Australia 2009