Company tax rate to reduce to 25% by 2026–2027
The Government intends to reduce the company tax rate to 25% over the next 11 income years.
The measure will be phased in from 1 July 2016, depending on company size (ie aggregated annual turnover). Small businesses will benefit sooner. The phase-in for all companies will be completed in the 2026–2027 income year.
Franking credits will continue to be calculated in the usual manner, by reference to the amount of tax paid by the company making the distribution.
Small business threshold to increase to $10 million
The small business entity threshold will increase from $2 million to $10 million from 1 July 2016.
As a result, a business with an aggregated annual turnover of less than $10 million will be able to access a number of small business tax concessions, including:
- the simplified depreciation rules;
- the simplified trading stock rules;
- a simplified method of paying PAYG instalments calculated by the ATO;
- the option to account for GST on a cash basis and pay GST instalments as calculated by the ATO;
- immediate deductibility for various start-up costs;
- a 12-month prepayment rule; and
- the more generous FBT exemption for work-related portable electronic devices.
CGT concessions
The threshold changes will not affect eligibility for the small business CGT concessions, which will only remain available for businesses with annual turnover of less than $2 million or that satisfy the maximum net asset value test (and other relevant conditions such as the active asset test).
Reduced tax rates for small business
The company tax rate for small business entities will reduce to 27.5% (from 28.5%) from the 2016–2017 income year. The rate is set to reduce further to 27% in 2024–2025 and then by one percentage point per year until it reaches 25% in 2026–2027.
Unincorporated businesses
To complement the company tax rate reductions, the tax discount (or tax offset) for unincorporated small businesses (eg sole traders and partners in a partnership) will increase over a 10-year period from 5% to 10%.
The tax discount will increase to 8% on 1 July 2016, remain constant at 8% for eight years, then increase to 10% in 2024–2025 and13% in 2025–2026, reaching a new permanent discount of 16% in 2026–2027. The maximum value of the discount will remain at $1,000.
From 1 July 2016, 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 (the current threshold is $2 million).