Henry Tax Review – SMSF & Superannuation

 

As it is now over four years since the Henry Tax Review, or to give it the full title the Australia’s Future Tax System Review, was released it seemed like good time to revisit some of the recommendations to see which have been implemented and which have not.

The Henry Tax Review

Announced in May 2008, around the federal budget by then treasurer Wayne Swan the Henry Tax Review was to be a “comprehensive review of Australia’s tax system to create a tax structure that positions us to deal with the demographic, social, economic and environmental challenges of the 21st century“. When the report was handed down, in December 2009 the review panel had made a total of 138 recommendations, including several about superannuation.

Tax on super fund income

Recommendation 19 was to halve the tax rate for super fund earnings from 15% currently to 7.5%. The 7.5% would apply to what is currently Exempt Current Pension Income and also to capital gains, though funds would loose the one-third discount. This has not been implemented.

Retirement exemption cap and CGT cap

Recommendation 17 included a recommendation to align the Retirement exemption cap with the CGT Cap. This recommendation has not been taken up, the Retirement exemption cap is still $ 500,000 while the CGT Cap is $1,355,000 for 2014/15 and continues to be indexed.

Super Contributions – Caps and Tax

Recommendation 18 included several recommendations for changes to the contributions rules:

  • Super contributions tax should be abolished
  • Super contributions should be taxed at the individual level, at marginal rates
  • People should receive an offset of this tax, up to an annual indexed cap of $ 25,000, with double this cap applying for people 50 and over
  • As part of implementing this offset the co-contribution and spouse contribution offset should be removed
  • The annual contributions caps should continue to apply
  • Super guarantee should not be taken into account for income support, family assistance or child support.

The Low Income Super Contribution (LISC) was a step towards the first recommendation, however it is the Governments current intention to abolish the LISC. Otherwise super contributions policy has gone in a different direction, and one much closer to the status quo.

Recommendation 20 also dealt with contributions, as it said that people over 75 should be able to make super contributions, if they meet the work test. This has been partially implemented by the extension of Super Guarantee to people over age 70, however this is only for mandated employer contributions and not other kinds of contributions as envisioned in the recommendation.

Super Guarantee and Super engagement

Recommendation 23 included a number of recommendations for improvements to super guarantee and ways to increase engagement  with, and ease of use of, superannuation:

  • Super Guarantee should be paid at the same time as wages
  • Employer super contributions should be reported to employees when paid
  • Superannuation records should be linked with an identifying number, to make super easier to manage
  • The Government should create a ‘superannuation portal’, which will allow people to manage their super through one channel

Some movement towards improving the payment and reporting of super guarantee was made when the Government was empowered to create regulations for superannuation pay-slip reporting, but as yet these regulations have not been made. Also, the use of the TFN has increased to allow for tracking of superannuation. However these changes do not match the scope of the recommendations.

Much like the Cooper review, many of the Henry Tax Review recommendations were rejected immediately, and some of the ones which at first seemed would proceed to implementation have become bogged down, which is unfortunate given the amount of thought and effort that is put into these report which can provide a blueprint for reform to Australia’s complex tax and superannuation system.

The full report of the Henry Tax Review can be found at the Australia’s Future Tax System Review.

 

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