Posted 16/10/2018 by Phillip Hawkins and Andrew Maslaris
The Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 (the new Bill) was introduced into the House of Representatives on 16 October 2018. The new Bill seeks to implement the Government’s announcement of 11 October 2018 that it would bring forward by five years the implementation of tax cuts for small and medium sized incorporated businesses with annual turnover of less than $50 million per annum. The changes would mean that small and medium businesses will face a corporate tax rate of 25 per cent from 1 July 2021 rather than 1 July 2026.
The new Bill also brings forward, from 1 July 2026 to 1 July 2021, the 16 per cent small business income tax offset for unincorporated small businesses (with annual turnover of less than $5 million). As unincorporated businesses are taxed through the personal income tax system, this ensures that they will receive a benefit equivalent to the cuts to the company tax rate at the same time as incorporated small and medium businesses.
According to the Explanatory Memorandum (EM) to the new Bill, the expected cost to the Budget of bringing forward the tax cuts will be $3.2 billion over the four years to 2021–22. The EM also states that the tax cuts are expected to ‘benefit around 3.3 million businesses employing 6.6 million Australians’.
Background to the proposed change
The Enterprise Tax Plan
The Treasury Laws Amendment (Enterprise Tax Plan) Act 2017 (the ETP No. 1 Act) received Royal Assent on 19 May 2017. This Act implemented a phased-reduction in the corporate tax rate for small and medium businesses (referred to as Base Rate entities) from 27.5 to 25 per cent from 1 July 2026. The ETP No. 1 Act also progressively increased the turnover threshold for entities that were eligible to pay the reduced corporate tax rate from $2 million (from 1 July 2015) to $50 million (from 1 July 2018).
As a result of the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018 the small business tax rate only applies to entities with annual income of less than $50 million who derive no more than 80 per cent of their total income in passive forms. These are referred to as ‘base rate entities’.
The ETP No. 1 Act also implemented a phased increase to the small business income tax offset (SBITO) from five per cent from 1 July 2015 to 16 per cent from 1 July 2026. The ETP No. 1 Act also increased the small business income threshold for businesses eligible to receive the SBITO, from $2 million (2015-16 income year) to $5 million (2016-17 and later income years). The SBITO is capped at $1,000 per business, per annum.
The Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 sought to further extend tax cuts to all companies regardless of their turnover; however, the Government announced on 22 August 2018 that it was no longer proceeding with these changes. As a result, companies with turnover of greater than $50 million per annum will still be subject to a company tax rate of 30 per cent.
Proposed changes in the new Bill
The new Bill seeks to accelerate the company tax rate reduction introduced by the ETP No. 1 Bill. The company tax rate for Base Rate entities will now be reduced to 26 per cent from 1 July 2020 (instead of 1 July 2025) and to 25 per cent from 1 July 2021 (instead of 1 July 2026).
The increase in the SBITO will also be brought forward by five years, with a 13 per cent discount applying from 1 July 2020 (instead of 1 July 2025) and a 16 per cent discount applying from 1 July 2021 (compared to 1 July 2026).
The table below outlines a summary of the current and proposed company tax reductions, and current and proposed unincorporated tax discounts.
Scheduled reductions in the company tax rate and increases in the SBITO
| |
Company Tax rate (%)
(up to $50 million in turnover)* |
Small businesses income tax offset (%)
(up to $5 million in small business income)* |
| Income year |
Current |
New Bill |
Current |
New Bill |
| 2018–19 |
27.50 |
27.50 |
8.00 |
8.00 |
| 2019–20 |
27.50 |
27.50 |
8.00 |
8.00 |
| 2020–21 |
27.50 |
26.00 |
8.00 |
13.00 |
| 2021–22 |
27.50 |
25.00 |
8.00 |
16.00 |
| 2022–23 |
27.50 |
25.00 |
8.00 |
16.00 |
| 2023–24 |
27.50 |
25.00 |
8.00 |
16.00 |
| 2024–25 |
27.00 |
25.00 |
10.00 |
16.00 |
| 2025–26 |
26.00 |
25.00 |
13.00 |
16.00 |
| 2026–27 |
25.00 |
25.00 |
16.00 |
16.00 |
Source: Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018.
Opposition position
The Opposition Leader, Bill Shorten, announced on 12 October 2018 that the Australian Labor Party will support the changes in the new Bill. This support will ensure that the new Bill will pass the Parliament.
Further information
The Parliamentary Library has previously published Bills Digests on the ETP No. 1 and ETP No. 2 Bills:
The Parliamentary Library has published Bills Digests on the initiating Bills for the ETP No. 1 Act and the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018:
Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016
Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018
Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017