In good news for business, the new Government has pledged to make the following changes - Company Tax Cut The new Government will cut the company tax rate by 1.5% which will reduce the rate from 30% to 28.5%. The start date for this measure is 1 July 2015. While this is certainly welcomed by the business sector, the effect of the reduction may be limited for two reasons. Firstly, it only applies to company structures. Therefore, the many businesses who are not incorporated (i.e. those who operate through partnership, sole trader or trust structures) will miss out on the tax cut altogether (including more than 70% of small businesses). Furthermore, for the many small business owners that strip the company profits relatively quickly, you will get next to no benefit from any corporate tax cut. This is because under the dividend imputation rules, the imputation credit (the credit that the dividend recipient gets for the tax paid on the dividend by the company) will also be reduced to 28.5%. So instead of getting a 30% credit when paying tax on the dividend as per the current rules, when you as the business owner repatriate the profits out of the company and pay tax at an individual level, the benefit of the 1.5% corporate tax reduction is lost. When company tax cuts are made without commensurate individual tax cuts, there is only a benefit when the profits remain in the company – which is not normally the case for many small business owners. However, when you are leaving the profits in the company (for example, you may be expanding and therefore pumping the profits back into the business) there is definitely a benefit from a company tax reduction. If you were to leave $300,000 of profits in your company for instance, the 1.5% tax cut will deliver a $4 500 benefit as compared to the current 30% rate.
Posted on: Tue, 12 Nov 2013 09:32:08 +0000
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