Small firms get timely July 1 tax cuts

Colin Brinsden
Small and medium businesses will get a tax cut in legislative changes from July 1

No one in their worst nightmare would have foreseen how essential the July 1 tax cuts for small business would have been when they were first legislated three years ago.

From Wednesday, the corporate tax rate for businesses with an annual turnover of under $50 million will be reduced to 26 per cent from 27.5 per cent.

The reductions are timely as businesses fight for survival in the face of the biggest economic downturn since the Great Depression because of the coronavirus pandemic.

The legislated corporate tax rate reductions under the coalition government's original 10-year enterprise tax plan set out to incrementally reduce the tax rate to 25 per cent from a long-standing 30 per cent rate.

The government had wanted all businesses to enjoy the staged reductions over a decade to help stimulate the economy, but big firms eventually missed out in the face of a hostile Senate.

After initially being reduced to 27.5 per cent for all businesses with a turnover of less than $50 million, the government decided in the 2018/19 mid-year budget review to fast-forward the next stage of the reduction to 26 per cent for the 2020/21 financial year.

In 2021/22, the rate will again fall to 25 per cent, five years earlier than originally planned.

Also from July 1, unincorporated businesses with an annual turnover of below $5 million will benefit from an increase in the small business tax discount from eight per cent to 13 per cent.

It will increase further to 16 per cent in 2021/22.

These measures are estimated to have a cost to revenue of $3.2 billion over the next four years.

Also from Wednesday, the government is cracking down on so-called illegal phoenixing, where dodgy executives strip down their businesses and transfer assets to another company to avoid paying outstanding liabilities.

The government over four years is providing $59.9 million to the Australian Taxation Office and $4.7 million to the Australian Securities and Investments Commission to combat such illegal behaviour.

It estimates such actions will return $196.4 million to the budget over the next four years.