Michelle Maynard, Partner at Carbon Accountants and Business Consultants, discusses the SME tax cuts which are on their way soon, following the passing of new legislation in Federal Parliament last month.
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Tax cuts for small to medium enterprises (SMEs) look to be on their way, earlier than expected, after the legislation passed the Upper House on Thursday 18th October with bipartisan support.
This legislation will see Corporate SMEs, with an annual turnover of up to $50 million, pay a flat tax rate of 25%. The corporate tax rate dropped from 30% to 27.5% from 1 July 2016 and will further reduce to 25% from 1 July 2021. This is 5 years ahead of the proposed schedule to have the 25% tax rate come into effect in 2026-27.
| Corporate | 18-19 | 19-20 | 20-21 | 21-22 | 22-23 | 23-24 | 24-25 | 25-26 | 26-27 |
| Existing | 27.5% | 27.5% | 27.5% | 27.5% | 27.5% | 27.5% | 27% | 26% | 25% |
| Fast-tracked | 27.5% | 27.5% | 26% | 25% | 25% | 25% | 25% | 25% | 25% |
In addition to this cut in corporate tax rates, Unincorporated Entities were also granted a further tax discount for SMEs earning under $50m.
This unincorporated small business tax discount is currently an 8% reduction in tax on small business income. This will rise to a 13% reduction in 2020-21 and further increase to a 16% reduction in income tax, from 1 July 2021.
This discount is applicable to business income only and is capped at $1,000 per individual in an income year. The $1,000 cap has not been extended with this new legislation.
| Unincorporated | 18-19 | 19-20 | 20-21 | 21-22 | 22-23 | 23-24 | 24-25 | 25-26 | 26-27 |
| Existing | 8% | 8% | 8% | 8% | 8% | 8% | 10% | 13% | 16% |
| Fast-tracked | 8% | 8% | 13% | 16% | 16% | 16% | 16% | 16% | 16% |
The Government’s press release boasted that “This means businesses will keep more of their own money – that’s money they can invest back into their business, to create jobs, to boost their productivity and grow.” According to this press release there are 3.3 million SMEs in Australia who will welcome this tax relief.
These company tax rates will cost the budget $3.2 billion over four years. The plans to provide further tax relief for businesses with turnover in excess of $50 million have been shelved.
It will be interesting to see what impact these tax cuts have on SMEs and the almost 7 million people they employ.
Michelle partnered with Carbon in 2017, bringing a wealth of experience in accounting and bookkeeping. Her extended suite of services covers everything from tax accounting, planning and estimates, to cloud integration, payroll and SMSF. Michelle started her career as a cadet in the Australian Taxation Office, then as a graduate at PwC. Before joining Carbon, she was a manager at PKF, bringing a wealth of knowledge and experience to the team at Carbon. Michelle specialises in providing tax and accounting advice to SMEs and HNWIs and their family groups, working to achieve the most effective strategies for them, both financially, tax effectively, and to help achieve their desired lifestyle.
Contact Michelle at Michelle.m@carbongroup.com.au You can also connect with Carbon Accountants and Business Consultants via Facebook, Twitter and LinkedIn
