The 2016-17  Federal Budget introduces a series of tax cuts progressively applied to business.

Significantly, the company tax rate will be gradually reduced to 25% and the threshold for accessing some of the small business entity concessions will increase dramatically from the current $2 million threshold to $10 million.

Of course, these changes are proposals only, and may or may not become law.

Reducing the company tax rate to 25%

The company tax rate will be reduced to 25% over 10 years.  The reduction will initially target companies with a turnover less than $10 million, then gradually increase access to all company taxpayers.

Maximum business turnover to be eligible for 27.5% company tax rate

Tax Year 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
Turnover $10m $25m $50m $100m $250m $500m $1b

From 1 July 2024, the company tax rate will progressively reduce to 25%.

Tax discount for unincorporated small business entities – trusts, partnerships etc.

The tax discount for unincorporated small businesses will increase incrementally from 5% to 16%.  The tax discount will increase to 8% on 1 July 2016 and eventually reach a new permanent discount of 16% in 2026‑27.  The measure coincides with staggered cuts in the corporate tax rate to 25%. The current cap of $1,000 per individual for each income year will be retained. Access to the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5 million.

Small business entity threshold jumps to $10m

The small business entity turnover threshold will increase from $2 million to $10 million from 1 July 2016.  The reform will give a greater number of businesses access to a range of tax concessions such as:

  • The lower small business corporate tax rate (27.5%);
  • Simplified depreciation rules including an immediate write-off for assets costing less than $20,000 that are acquired by 30 June 2017 and depreciation pooling provisions;
  • Simplified trading stock rules;
  • A different method of calculating PAYG instalments;
  • The option of accounting for GST on a cash basis;
  • FBT exemptions (this would start from 1 April 2017); and
  • A trial system of using a simpler business activity statement.

The current $2 million turnover threshold will be retained for access to the small business CGT concessions and access to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.

Simplifying Division 7A

From 1 July 2018 Division 7A will be amended to ease the compliance burden associated with the rules. The reforms include a self‑correction mechanism for inadvertent breaches of Division 7A, appropriate safe‑harbour rules to provide certainty, simplified Division 7A loan arrangements and a number of technical adjustments to improve the operation of Division 7A and provide increased certainty for taxpayers.

UK style “Google” tax to reign in multinationals

Australia intends to introduce it’s own version of the UK’s 25% diverted profits tax (DPT), applying to multinationals with global revenue of $1 billion or an entity that is a member of a group of entities, consolidated for accounting purposes, which has annual global income of $1 billion or more.

For more information on how the proposed Budget may affect your business, please feel free to contact our Accounting Team.