Reduced Corporate Tax Rate for Small Businesses

For small business entities operating in a company structure, the reduced corporate tax rate of 28.5% will apply for the 2015-16 financial year. To be eligible for this, the company must be carrying on a business and have an aggregated turnover of less than $2 million in the 2014-15 or 2015-16 financial year.

The corporate tax rate will remain at 30% for all other companies that are not small business entities. This includes passive companies, such as corporate beneficiaries receiving trust distributions, and other companies with an aggregated turnover of $2 million or more.

The 2016-17 Federal Budget proposed to expand this concession in two ways. First, the current rate of 28.5% will be further reduced to 27.5% effective 1 July 2016. This is part of the Government’s long-term plan to reduce the corporate rate to 25% for all corporate entities (regardless of their turnover) over a 10-year period. However, it is currently unclear how this will apply to companies not carrying on a business (e.g. corporate beneficiaries).

Second, the Budget also proposes to increase the small business entity threshold from $2 million to $10 million effective 1 July 2016. This is significant considering the current $2 million threshold has been in place since 1 July 2007 and is well overdue for an increase.

The proposed measures are expected to provide cash flow benefits to more small businesses. This also means that more small businesses will be eligible for the various small business concessions, including the immediate deductions for depreciating assets costing less than $20,000 (until 30 June 2017), business start-up costs, such as the professional fees and government charges, and prepaid expenses under the 12-month prepayment rules, among other things.

Unfortunately, the threshold increase will not apply to the Small Business CGT concessions. This means the current threshold of $2 million still applies. It is unclear whether the new Small Business Restructure Rollover as it is not specifically one of the Small CGT Concessions, however in our view, the new threshold will not extend to the Restructure Rollover either.

Source: MKT Taxation Advisors

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