Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 becomes law accelerating 25% company tax rate by 5 years for ‘base rate entities’ (Sub-$50m turnover & no more than 80% passive income)

The Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 received Royal Assent on 25.10.2018, as Act 135 of 2018 and becomes law. The Government introduced the Bill into Parliament on 16.10.18 and passed both houses on 18.10.18.

It implements the proposal to accelerate the reduction of the tax rate for corporate tax entities that are ‘base rate entities’, ie corporate tax entities that derive no more have an aggregated turnover of less than $50 million and no more than 80% of their income in passive forms.

The corporate tax rate, for these ‘base rate entities’ will:

• reduce from 27.5% to 26% in 2020-21,
• before being cut to 25% for the 2021-22 income year and later income years.

This means eligible taxpayers will have a tax rate of 25% in 2021-22, rather than from 2026-27 as currently legislated – 5 years earlier than previously legislated.

In addition, the Bill proposes to increase 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 for the 2020-21 income year (ie unincorporated businesses). This offset rate will then increase to 16% for the 2021-22 income year and later income years. The small business income tax offset continues to be capped at $1,000 per individual per year, ie it will not change.

[APH website: Bill Tracker, Bill, EM; Treasury website: Ministerial Media Release; LTN 199, 16/10/18; LTN 200, 17/10/18; LTN 201, 18/10/18; LTN 206, 25/10/18; Tax Month – October 2018]

CPD questions (answers available)

1. Has the Bill become law, that accelerates the reduction of company tax rates, for ‘Base Rate entities’?
2. Will the 25% rate come 5 years earlier?
3. Need a Base Rate Entity only have turnover of less than $50m?
4. Will the rate for Base Rate Entities be 26% in 2018/19?
5. Will the rate for Base Rate Entities be 26% in 2019/20?
6. Will the rate for Base Rate Entities be 26% in 2020/21?
7. Will the rate for Base Rate Entities be 26% in 2021/22?
8. Will there be an equivalent tax offset for unincorporated small businesses?
9. What offset rate is the equivalent of the 25% tax rate?
10. In what year is it to cut in?
11. Is it capped?