Tax cut for small companies
The Government will cut company taxes by $1½ billion over the next four years to provide incorporated small business with much needed tax relief.
This historic small business company tax cut is a key component of the Jobs and Small Business package.
The Government is reducing the tax rate for the more than 90 per cent of incorporated businesses with annual turnover under $2 million. The company tax rate for these businesses will be reduced by 1.5 percentage points to 28.5 per cent.
New company registrations in the last financial year were the highest on record. This measure will help all new and existing small companies grow and thrive. Up to 780,000 incorporated small businesses will be eligible for a tax cut as a result of this initiative.
Reducing the rate of company tax will improve the cash flow of incorporated small business and increase their capacity to engage in the economy.
The tax cut will apply from 1 July 2015, meaning companies with Pay‑As‑You‑Go instalments can benefit from their first payment after 1 July 2015.
The franking credit rate will be unchanged at 30 per cent, which means incorporated small business owners will pay less tax, providing certainty for investors such as self-funded retirees.
While the tax rate for companies with a turnover of $2 million or more will remain at 30 per cent, the lower small company tax rate is a first step in the Government’s commitment to deliver taxes that are lower, simpler and fairer through the Tax White Paper.
In 2013-14 new company registrations were the highest on record
How this will help companies
Company with annual turnover under $2 million
Virginia runs an agriculture advisory service in western New South Wales.
Virginia's business has annual turnover of $1.3 million and has a taxable income of $200,000.
Small businesses will face their lowest company tax rate since 1967
Current law
Under the current law, Virginia’s business faces a company tax rate of 30 per cent, and her business pays $60,000 income tax.
New law
Under the new law, Virginia’s company tax rate goes down to 28.5 per cent, and her business pays $57,000 income tax.
Benefit
Virginia’s business will be $3,000 better off under the new law.
| Current law | New law | |
|---|---|---|
| Turnover | $1,300,000 | $1,300,000 |
| Taxable income | $200,000 | $200,000 |
| Tax paid | $60,000 | $57,000 |
| Benefit | +$3000 |
PLUS other taxation benefits
As a small business owner, Virginia may also be eligible for a range of other taxation benefits including:
- concessions on capital gains tax
- accelerated depreciation (see pg 11)
- simplified accounting and reporting arrangements
- immediate deduction for certain pre-paid business expenses
- option to account for GST on a cash basis
- option to elect for annual apportionment of some GST input credits
- option to pay GST by quarterly instalments
- PAYG instalments based on GDP-adjusted notional tax