The Government and Labor have agreed to bring forward planned small business tax cuts; reductions in the corporate tax rate and small business offset have also been accelerated.

Tirachard Kumtanom - Pexel

Prime Minister Scott Morrison has announced that the Government will bring forward its planned tax cuts for small business by five years. He said the Government would introduce the necessary legislation in Parliament during mid-October 2018. Labor has indicated it will support the bring-forward of the tax cuts, thereby ensuring quick passage of the legislation through Parliament.

As shown in the following tables, this means businesses with a turnover below $50 million will have a tax rate of 25% in 2021–2022 rather than from 2026–2027 as currently legislated. Similar timing changes will apply to the roll-out of the 16% tax discount for unincorporated businesses.

Mr Morrison said this means that a small business that makes $500,000 profit will have an additional $7,500 in 2020–2021 and $12,500 in 2021–2022.

Company tax rates

2018–2019

2019–2020

2020–2021

2021–2022

2022–2023

2023–2024

2024–2025

2025–2026

2026–2027

Corporate

(%)

(%)

(%)

(%)

(%)

(%)

(%)

(%)

(%)

Existing legislated rates

27.5

27.5

27.5

27.5

27.5

27.5

27

26

25

Fast-tracked rates

27.5

27.5

26

25

25

25

25

25

25

2018–2019

2019–2020

2020–2021

2021–2022

2022–2023

2023–2024

2024–2025

2025–2026

2026–2027

Unincorporated

(%)

(%)

(%)

(%)

(%)

(%)

(%)

(%)

(%)

Existing legislated rates

8

8

8

8

8

8

10

13

16

Fast-tracked rates

8

8

13

16

16

16

16

16

16


Business tax rates and small business tax offset changes

The Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 was introduced into and passed by the House of Representatives on 16 October 2018 and passed by the Senate on 18 October 2018. The Bill implements the proposal to accelerate reduction of the tax rate for base rate entities (ie corporate tax entities that derive no more than 80% of their income in passive forms and have an aggregated turnover of less than $50 million).

Corporate tax rate

Under the measures, the corporate tax rate for base rate entities will reduce from 27.5% to 26% in 2020–2021, before being cut to 25% for 2021–2022 and later income years. This means eligible taxpayers will have a tax rate of 25% in 2021–2022, rather than from 2026–2027 as previously legislated. This is summarised in the following table.

Year

Revised rate

Previously legislated

(%)

(%)

2018–2019

27.5

27.5

2019–2020

27.5

27.5

2020–2021

26

27.5

2021–2022

25

27.5

2022–2023

25

27.5

2023–2024

25

27.5

2024–2025

25

27

2025–2026

25

26

2026–2027 on

25

25

Note that the tax rate for corporate tax entities which do not qualify as base rate entities remains unchanged at 30%.

Unincorporated businesses’ tax offset

In addition, the Bill increases the small business income tax offset rate to 13% of an eligible individual’s basic income tax liability that relates to their total net small business income (ie unincorporated businesses) for 2020–2021. This offset rate will then increase to 16% for 2021–2022 and later income years. This is summarised in the following table.

Year

Revised rate

Previously legislated

(%)

(%)

2018–2019

8

8

2019–2020

8

8

2020–2021

13

8

2021–2022

16

8

2022–2023

16

8

2023–2024

16

8

2024–2025

16

10

2025–2026

16

13

2026–2027 on

16

16

Note that the small business income tax offset continues to be capped at $1,000 per individual per year.

The changes will commence in 2020–2021. The measure was previously announced by the Government on 11 October 2018. The speedy passage demonstrates that tax legislation can in fact pass through Parliament promptly, if it is deemed politically expedient.




Anderson & Associates

Source: www.pm.gov.au/media/fast-tracking-tax-relief-small-and-medium-businesses.