On 11 October 2018, the Prime Minister; Mr Morrison, announced that his Government would introduce legislation during the next session of Parliament, fast-tracking our business tax relief for more than three million businesses that employ nearly seven million Australians. The way this would accelerate savings for both incorporated and unincorporated businesses (with sub-$50m turnover, is set out below, in the tables.

In summary, though, this means businesses with a turnover below $50 million will face a tax rate of just 25 per cent in 2021-22 rather than from 2026-27 as currently legislated (5 years earlier).  Similar timing changes will apply to the roll out of the 16 per cent tax discount for unincorporated businesses.

This strange 6 year plateau of tax rates, for sub-$50m turnover companies, was the period over which progressively larger and larger turnover companies were brought down to the 27.5% rate, before all companies stepped done to 27.0%, 26.0% and 25.0%, successively, over the next three years. But when the Senate refused to allow tax cuts for companies with turnovers over $50m, they just removed those schedules and left the sub-$50m turnover companies waiting for no good reason.

The PM is really just removing the 5 remaining years of waiting of superfluous waiting.

This means that a small business, such as an independent supermarket or a pub, that makes $500,000 profit, will have an additional $7,500 in 2020-21 and $12,500 in 2021-22.

Mr Morrison said that this change will help to ensure Australian businesses are competitive (though, compared with the US rate of just over 20% and rates lower than that scattered around asia and the UK, we’ll ultimately have to better than 25% and that only for sub-$50m turnover businesses).

Mr Morrison set this as a test for Labor, to see if they wanted to oppose a tax cut for small/medium enterprises. In truth, the Government could get this passed, with the support of the cross-bench in the Senate, but one day later, Labor announced that it would support the legislation.

 

Corporate 18-19 19-20 20-21 21-22 22-23 23-24 24-25 25-26 26-27
Existing 27.5% 27.5% 27.5% 27.5% 27.5% 27.5% 27% 26% 25%
Fast-tracked 27.5% 27.5% 26% 25% 25% 25% 25% 25% 25%

 

Unincorporated 18-19 19-20 20-21 21-22 22-23 23-24 24-25 25-26 26-27
Existing 8% 8% 8% 8% 8% 8% 10% 13% 16%
Fast-tracked 8% 8% 13% 16% 16% 16% 16% 16% 16%

 

FJM 13.10.18

[Prime Minister’s website: Accelerate Tax Cuts Media Release; LTN 196, 11/10/18; Tax Month – September 2018]

 

CPD questions (answers available)

  1. What is the tax rate for companies with sub-$50m turnovers, this year (2018/19)?
  2. In what year would the 25.0% rate have applied, on the existing law?
  3. In what year would the 25.0% rate apply, under the accelerated plan?
  4. Is this 5 years earlier?
  5. Was the reason for this 5 year period, the years allowed, in the original 10 year plan, for companies with progressively larger and larger turnovers, to have their rate reduced to 27.5%?
  6. Did PM Morrison succeed in ‘wedging’ Labor on this issue?

[Answers:1.27.5%;2.2016-27;3.2021-22;4.yes;5.yes;6.no(butHe’llGetHisMeasureThrough)]

 

 

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