Reducing the corporate tax rate

On 3 May 2016, the government announced in the 2016–17 Budget that it will reduce the corporate tax rate progressively from 30 per cent to 25 per cent.

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 and progressively rise until the 27.5 per cent rate applies to all corporate tax entities subject to the general company tax rate in the 2023-24 income year.

The corporate tax rate will then be cut to 27 per cent for the 2024-25 income year 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
2015-2016 $2m 28.5% 30.0%
2016-2017 $10m 27.5% 30.0%
2017-2018 $25m 27.5% 30.0%
2018-2019 $50m 27.5% 30.0%
2019-2020 $100m 27.5% 30.0%
2020-2021 $250m 27.5% 30.0%
2021-2022 $500m 27.5% 30.0%
2022-2023 $1b 27.5% 30.0%
2023-2024 No threshold 27.5% 27.5%
2024-2025 No threshold 27.0% 27.0%
2025-2026 No threshold 26.0% 26.0%
2026-2027 No threshold 25.0% 25.0%

Start Date

The measure will apply from the 2016-17 income year.

Legislation and supporting material

This change is not yet law and is subject to the normal parliamentary process.

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10 Year Enterprise Tax Plan — increase the unincorporated small business tax discount

In the 2016-17 Budget, the Government announced an increase to the tax discount for unincorporated small businesses incrementally over 10 years from 5 per cent to 16 per cent.

From 1 July 2016, the tax discount will increase to 8 per cent, remain constant at 8 per cent for eight years, then increase to 10 per cent in 2024-25, 13 per cent in 2025-26 and reach a new permanent discount of 16 per cent in 2026-27.

The increases will coincide with staggered cuts in the corporate tax rate to 25 per cent. The current cap of $1,000 per individual for each income year will be retained.

The tax discount applies to the income tax payable on the business income received from an unincorporated small business entity.

From 1 July 2016, the discount will be extended to individual taxpayers with business income from an unincorporated business that has an aggregated annual turnover of less than $5.0 million.

Legislation and supporting material

This change is not yet law and is subject to the normal parliamentary process.

Find out more

10 Year Enterprise Tax Plan — increase the small business entity turnover threshold

In the 2016-17 Budget, the Government announced an increase to the small business entity turnover threshold from $2.0 million to $10.0 million from 1 July 2016.

The current $2.0 million turnover threshold will be retained for access to the small business capital gains tax concessions.

Access to the unincorporated small business tax discount will be limited to entities with turnover less than $5.0 million.

From 1 July 2016, Business with a turnover of less than $10.0 million will be able to access a range of concessions which are currently only available to business entities with a turnover of less than $2.0 million.

AUSTRALIAN INCOME TAX AND FOREIGN EXCHANGE RATE

Tax wise, lower Australian dollar exchange rate will benefit both Australian tax payers’ foreign income as well as tax deductible foreign expenses.
When you have foreign investment such as bank interest earned from UK, though you may earned same amount Pound Sterling in 2015 as in 2014, say 10,000 GBP, when it is converted into Australia dollar, in year 2015 you get AUD $1,118.00 more in 2015 than in 2014, i.e. extra 6.566% earning point.
When you have tax deductible foreign expenses, say foreign rental expenses, like bank interest, Repair and Maintenance, real estate agent fee etc total of 10,000 GBP, when they are converted into Australian dollars, you will get $1,118.00 extra more tax deductions in 2015 than in 2014 in your Australian income tax return, while in reality 10,000 GBP spend in 2014 are the same as 10,000 BGP spent in year 2015, but you get $1,118.00 extra tax deduction.
To be short, investors can be benefit while exchange rate fluctuate, and there are various investments, like bank deposit, investment property, cash management fund, and even operate your own business.

Budget 2015 & small Tax Breaks

Tax cuts for small business
If your small business has a turnover of less than $2 million per year, these tax breaks apply to you.

• 1.5% tax cut for companies
If your business is a company, you’ll get a 1.5% company tax cut from 1 July 2015. Your new company tax rate will be 28.5%.

Visit the Australian Taxation Office (ATO) website for more on the company tax cut .
• 5% tax discount for other businesses
If your business is not a company, you’ll get a 5% tax discount from 1 July 2015. This means the amount of tax you need to pay on your business income will be reduced by up to 5%, capped at $1,000 each year.

Visit the ATO website for more on the tax discount .
• Asset deductions
You’ll be able to immediately depreciate any asset costing less than $20,000 which you buy from Budget night until 30 June 2017. There is no limit on the number of assets costing less than $20,000 that you can immediately depreciate, but you need to buy them between Budget night and 30 June 2017.

Tax planning & Super Contribution 2015

Tax year ending 30th June 2015 is fast approaching, there is tip for individual tax payers and employers who have higher taxable income, would like to reduce income, so reduce tax payable for the year by contributing super for themselves, or for their employees by certain date and in certain way.
For individuals who are not employees, or if are, earning not much as employees such as sole trader, partners in partnership, investment individuals: if they make personal super contribution to superfund, it can be a tax deduction in your tax return, However you must do it within the required timeframe, and in a proper way to be able to eligible for tax deduction. Your fund must acknowledge the receipt of the contribution you made on or before 30th June 2015, meanwhile, you must notify your fund your intension to treat this contribution you made for tax deduction purpose.
For employers who contribute super on their employees’ behalf, to be able to deduct super as business expenses, the contribution must be made before 30th June 2015