Government secures tax cuts for businesses up to $50 million: How will it affect you?

R&D incentive

SMEs that are turning over up to $10 million annually will receive a tax cut this year, after the Senate approved part of the government’s plan to cut corporate taxes.

At several points on Friday afternoon it looked like the federal government might be heading to the 2017-18 federal budget without any part of its 10-year company tax plan passed, but an 11th-hour deal has secured its promised changes for SMEs.

There was crossbench support for the plan to drop the corporate tax rate for small businesses with annual turnover of up to $10 million to 25% by 2026-27, but Senator Nick Xenophon stood in the government’s way when it came to extending the changes to businesses with annual turnover of up to $50 million.

In the final hours of the last Senate session, the government secured a deal with Xenophon, who supported the tax cuts for businesses turning over $50 million in exchange for a number of extra changes to energy policy, including a one-off payment to pensioners to help deal with rising energy prices.

Business groups have lobbied hard for these changes, promising companies will reinvest savings into “jobs and growth”. However, the move towards a 25% corporate tax rate is a gradual one.

Here’s four things you need to know about the deal.

Who gets will see the changes first?

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 is designed to roll out a series of cuts to the corporate tax rate for businesses over the next 10 years, depending on their annual turnover.

The passing of the bill in the Senate means that from this financial year, businesses with annual turnover of up to $10 million will have their tax rate lowered to 27.5%. This will then drop to 27% by 2024-25, and to 25% by 2026-27.

Unincorporated businesses will also receive the tax cut that was promised to them in the 2016 May budget, with the tax discount for unincorporated businesses increasing from 5% to 8% this year, and to 13% discount in the 2025-26 financial year.

Who will have to wait?

Companies turning over more than $10 million each year will have to wait to see their tax rate reduced.

While companies businesses with a turnover of between $10 million and $50 million formed the central point of conflict when debating the legislation, companies with up to $25 million in annual turnover will have to wait until 2017-18 to see their rate drop to 27.5%

Those turning over between $25 million and $50 million each year will have to wait until 2018 to receive a tax cut.

What are people hoping to spend it on?

Business groups have told SmartCompany over the past year the tax plan would allow SMEs to tackle many of the issues stifling economic growth more broadly, including by allowing them to address underemployment by reinvesting in staff, and having more confidence to invest in future plans.

However, while smaller operators welcomed the change this week, they still believe more needs to be done to give small and medium business a leg-up in the long run.

“The cut will obviously give us some savings but in the big scheme of things they have a long way to go,” says Tom Caesar, director of Positive Lending Solutions, a lending provider that turned over $8.9 million in 2015-16.

“Any profits we have at the end of the financial year we are re-investing back into the business, which usually results in a investment around technology. However, Australia will never be internationally competitive until we have a government in power that is prepared to radically change our entire taxation system.

“The government needs to be more strategic with bigger tax reliefs for companies that are investing in their own people, technology and growth strategies.”

Others say that while the cuts are a step in the right direction, there are other policies that could encourage early stage companies to get started on new ideas or feel able to stick it out when things are challenging.

Andy Watt, chief financial officer of of aerial imaging company Nearmap, said while the tax cuts are an incentive for businesses to stay in Australia, he doesn’t believe the cuts will have a material impact on the Nearmap business.

A former Smart50 finalist, Nearmap was turned over $21 million in the 2013-14 financial year.

“Providing more ready access to start up capital, further expanding the benefits of the R&D tax incentive and providing enhanced employment creation incentives will, in our opinion, improve the survival rate and growth prospects of early stage businesses, and hence boost the economy overall,” he said in a statement.

Will company tax be a new battle front at the next election?

The Labor Party has consistently opposed a cut in the corporate tax rate for businesses with a turnover of more than $2 million, with Opposition Leader Bill Shorten claiming on Friday night the tax policy is proof the Prime Minister is only looking out for big business.

Thousands of commenters engaged on the issue on social media across the weekend, with many dubious that the changes would see them receive more hours at their part time and casual jobs,

Labor has not ruled out attempting to reverse the tax cuts if elected at the next election. Meanwhile, The Australian reports Monday’s Newspoll opinion poll saw support for the Coalition slip further, and the government is now trailing Labor in two-party preferred terms at 47-53.

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5 years ago

I would rather have more proper and decent assistance to help me overcome export hurdles from this “export hole” in the antipodes to most of the world.

Austrade does not cut the mustard. They want tax receipts, we need switched on thinkers.

In most western countries 50%-80% business fail within 10 years, the ones that could grow more and they should be working on are the survivors.

I have started my 25th year and it does not matter which major party was in, companies like mine are forgotten. The machinery behind government in this country at all levels is wanting.

5 years ago

Turnbulll is trying to help SME’s, but 6 years and close to AUD 300 billion in debt form Labor is hard to overcome, their plans and spending and what they committed even after leaving has screwed this country for 1/2 to 1 generation, that is if the trend they set in can ever be paid paid. Plus a good portion of us live in fantasy land and could not care paying it back.

You children and grandchildren will not live in first world country if we dont do something.

5 years ago

As a small business owner turning over between 2 and 3 million per year for the past 15 years I will welcome this tax cut. Our wages have been effectively frozen for the last 4 years with profits being driven down by many external factors, people shopping on line, major companies being more box movers than professional sellers, has all helped to drive prices lower. Great for the customers but hell for small business owners.
So my plan is to use the tax cut as a way to give staff a wage rise as the only way I can pay more out is to have more left after everyone takes their cut. I wont be able to hire more people as the cut wont be enough to enable that but hopefully the staff that I do have will end up with more in their pockets.

Rohan Baker
Rohan Baker
5 years ago

As needed as this reform is, it’s not a vote winner. George Bernard Shaw said it best:

“A government who robs Peter to pay Paul, can always rely on the support of Paul.”

Rohan Wills
Rohan Wills
5 years ago

There is a huge group of forgotten businesses in all this, unfortunately they make up a large portion of the small businesses in this country.

As an accountant the majority of small businesses we deal with operate through trusts. Whilst the government has offered some discount to compensate this only applies where the trust distributes its profits directly to an individual. It doesn’t apply where it distributes its profits via another trust first. This is very common in many situations where a business has multiple owners. Seems an unintended consequence but is it one the government are going to correct?

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