On Wednesday 22 August 2018, the Senate (Pauline Hanson, in particular) refused to pass the Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017.

This is the Bill that would have progressively increased the turnover threshold, to apply the lower 27.5% corporate tax rate to all companies, and then to step down the 27.5% rate, to 25% (for all companies).

There is some history to this. The history is that the original (No. 1) Bill, by the same name, proposed a 10 year stepped reduction in the corporate tax rate, from 30% to 25% – for all corporate entities. The Senate, however, amended the Bill, to only allow this stepped reduction for companies up to a turnover of $50m, in a way that I will summarise below. The Government accepted these changes in early 2017, to provide relief to at least some Australian companies.

It then introduced this ‘No. 2’ Bill, in May 2017, to put the remainder of its 2016/17 Budget announcement, back to the Parliament (namely the 10 year stepped reduction down to 25% for all companies). This Bill had a chequered history and finally failed to pass. The history was briefly this.

  • Labor opposed the Bill, and so did the Greens, so the Government was dependant on most independents, on the cross-bench, supporting the Bill, which was proving difficult, despite extensive ‘hearding of the cats’.
  • Then the ‘Super Saturday’, of 5 bye-elections, resulted in Labor holding the 2 seats, which the Government contested – one with an increased majority. This was in Queensland, where the Government was vulnerable to losing seats.
  • This seemed to ‘spook’ the Government, which was then looking to put its corporate tax rate reduction agenda to the Senate, one more time, to see if it would pass, and then jettison the Bill (and the balance of the reforms) if it did not pass.
  • By this time, however, the Hayne Banking Royal Commission had been handing out such a ‘flogging’ to the big banks, that it became politically difficult to hand them a tax cut (even if the Senate agreed to otherwise allow the cuts to go to all other ‘big’ companies).
  • The Government proposed amendments, in the Senate, to the No.2 Bill, to exclude ‘large ADI’s’ (read ‘big banks’) – from any reduction in the 30% rate.
  • This was put to a final vote, in the Senate, on 22 August 2018, and Pauline Hanson famously dug her heals in, refused to support the amended Bill. This was the ‘final nail in the coffin’ for tax cuts for companies with turnovers over $50m pa.
  • There was talk, however, of further amendments to accelerate the reduction, from 27.5% down to 25% (which was only legislated for companies with turnovers, up to $50m pa). The way the No.1 Bill was amended, these companies had to wait  5 years, until the 2024-25, to commence the 3 year rate reduction to 27.0%, 26.0% and 25.0%. This 5 year wait came from the Senate just removing the amendments during that period (which were to steadily increase the size of the companies that were entitled to the lower 27.5% rate).
  • However, on the same day that Pauline Hanson scuttled the No. 2 Bill (22.8.18), Queensland conservative MP: Peter Dutton, challenged the incumbent Prime Minister: Malcolm Turnbull, and by Friday 24th August 2018, the former Treasurer: Scott Morrison, had replaced Mr Turnbull as Prime Minister.
  • Mr Morrison has subsequently decided to abandon any further attempt to reduce the company tax rate to 25%.
  • So, we can forget being competitive with the US, which now has a 21% corporate tax rate and the UK, which has a rate lower than that again.

The ATO summarises the rate reductions, that are now law, as follows.

Enterprise Tax Plan 2016

Under the current law the following corporate tax rates apply.

Small business entities changes and timeframes
Year Aggregated turnover threshold (SBE) Corporate entities under the aggregated turnover threshold and carrying on a business All other corporate entities
2015–16 $2m 28.5% 30.0%
2016–17 $10m 27.5% 30.0%
Base rate entities changes and timeframes
Year Aggregated turnover threshold (BRE) Corporate entities under the aggregated turnover threshold All other corporate entities
2017–18 $25m 27.5% 30.0%
2018–19 to 2023–24 $50m 27.5% 30.0%
2024–25 $50m 27.0% 30.0%
2025–26 $50m 26.0% 30.0%
2026–27 $50m 25.0% 30.0%

 

FJM 8.9.18

[APH website: Bills Tracker, Bill, EM, Big Banks Senate Amendments, Big Banks Supplementary EM; ATO website: Corporate Rate Reductions; LTN 161, 22/8/18; Tax Month – August 2018]

 

Comprehension Questions (answers available)

  1. Did the No. 2 Bill reintroduce company tax rate cuts, down to 25%, for companies with turnovers over $50m pa?
  2. Did it pass?
  3. Did the 27.5% corporate rate ‘kick in’ for the 2017/18 year just gone by?
  4. Do the sub-$50m turnover companies get their rates to reduce below 27.5%?
  5. When does that start?

[Answers:1.yes;2.no(courtesyOfPaulineHanson);3.no(2018/19JustStarted);4.yes;5.no(2024/25)]

 

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