In the 2016–17 Budget, the government announced that it will reduce the corporate tax rate progressively from 30 per cent to 25 per cent. Some government amendments have been made to this measure and these have been incorporated into the information below.
Currently, there is a small business corporate tax rate which is less than the headline corporate tax rate.
- Companies with an aggregated annual turnover below $2 million are taxed at 28.5 per cent.
- Companies with an aggregated annual turnover of $2 million or above are generally taxed at 30 per cent.
The government announced a reduction in the small business tax rate from 28.5 per cent to 27.5 per cent for the 2016–17 income year. The turnover threshold to qualify for the lower rate will start at $10 million (in 2016-17) and progressively rise until the 27.5 per cent rate applies to corporate tax entities with less than $50 million aggregated annual turnover in the 2018-19 income year. From 2017-18, entities eligible for the lower tax rate will be known as base rate entities.
The corporate tax rate will then be cut to 27 per cent in the 2024–25 income year for corporate tax entities with less than $50 million aggregated annual turnover and by one percentage point in each subsequent year until it reaches 25 per cent for the 2026–27 income year.
The maximum franking credit that can be allocated to a frankable distribution paid by a company will be based on the company’s applicable corporate tax rate.
A summary of the proposed rates is provided below:
| Year | Aggregated Annual Turnover Threshold | Entities under the Threshold | Other Corporate Tax Entities |
|---|---|---|---|
| 2015–16 | $2m | 28.5% | 30.0% |
| 2016–17 | $10m | 27.5% | 30.0% |
| 2017–18 | $25m | 27.5% | 30.0% |
| 2018–19 | $50m | 27.5% | 30.0% |
| 2019–20 to 2023-24 | $50m | 27.5% | 30.0% |
| 2024–25 | $50m | 27.0% | 30.0% |
| 2025–26 | $50m | 26.0% | 30.0% |
| 2026–27 | $50m | 25.0% | 30.0% |
Administrative treatment
This law was introduced to the House of Representatives on 1 September 2016. The Bill was passed with government amendments by the Senate on 31 March 2017. The amended Bill is expected to be re-introduced into the House of Representatives for passage in early May 2017.
PAYG Instalments
For Pay As You Go Instalment purposes, we can decide to anticipate the passage of a tax rate reduction. Accordingly, for activity statements that have not yet issued, we will incorporate the lower (27.5%) tax rate where applicable as soon as possible.
Those companies that currently have an activity statement that does not reflect the reduction in the corporate tax rate can vary their instalment rate or amount to reflect the reduction if they believe they are eligible.
Companies that choose to vary to reflect the rate reduction will not be subject to a variation penalty.
Income Tax Returns
Our advice to taxpayers and other stakeholders lodging 2016-17 company tax returns is to lodge using the existing law.
Until the new law passes, we will continue to process company tax returns for eligible businesses at the 28.5% tax rate as this is correct under law.
If the new law is passed, we will identify and amend those tax returns to reflect the 27.5% tax rate. We will pay interest on overpayments of tax.
We will also inform tax agents, software developers and other stakeholders when the law passes.