In December 2017, we published this article and video:
Those publications were in response to a Government Bill to change the way companies could access the lower corporate tax rate. That bill has now become law and has made the determination of the tax position for a company much more complicated.
With the “bright line” test in this new law, companies may fluctuate from being a lower tax “base rate entity” one year and subject to the full 30% corporate tax rate the next year and then, subsequently revert. A change would also trigger for the maximum franking for dividends from that company in the following year.
It’s a complete mess!
Having two different tax rates for companies makes things complicated. Having a phased introduction makes things complicated. Creating yet another definition for income makes things complicated. Creating a circumstance where a company’s tax rate changes year on year depending on an additional, artificial definition of income, makes things complicated. Reducing the level of franking available where companies have paid tax previously at a higher rate is very adverse to shareholders.
We have ended up with a very confusing tax system for small companies.
Heightening the effect of these complications, the Government and the Labor Party have now further agreed to bring forward the further tax cuts that were previously scheduled for the years between 2024 and 2027 to lower the “base rate entity” corporate tax rate from 27.5% to 25%. Bring forward legislation passed the Senate on 18 October. The new schedule for the lower corporate tax rates is set out in the table below:
Like so many “pro-business” tax changes in the past the tax benefits might be outweighed by the increase in red tape.
19 October 2017