Businesses earning less than $50 million a year will have their company tax rate sliced by 1.5% on Wednesday as the Morrison government’s fast-tracked tax relief for SMEs comes into effect with the new financial year.
The corporate tax rate for SMEs will fall from 27.5% to 26% from the 2020-21 financial year, starting on July 1, but will remain at 30% for businesses with more than $50 million in annual turnover.
The reduction is one of several that were legislated by the federal government in 2018; a further cut to 25% for SMEs will come into effect in the following financial year (2021-22).
Morrison fast-tracked the SME tax cuts in 2018 in a per-election pitch to small business owners, but the bushfire crisis and COVID-19 pandemic that have happened since intensify the stakes for the small business community.
Both tax cuts were initially predicted to save small business owners more than $28 billion, but this figure is likely to be lower given the revenue impact of more recent events and the likelihood of a forthcoming recession in Australia.
And the financial benefit of the cuts coming into effect on Wednesday is unlikely to have an impact on the bottom lines of business owners for some time, because they apply to the 2021-22 financial year.
Nevertheless, these are unlikely to be the only tax reductions business owners benefit from over the next year, with Finance Minister Mathias Cormann previously signalling an interest to further cut tax burdens for businesses later this year.
“We are committed to lower taxes. We’re always committed to lower taxes,” Cormann said in April.
“We understand that will help us strengthen the economic recovery on the other side.”