Bills Digest no. 24,
2016–17
PDF version [1367KB]
Kai Swoboda
Economics Section
13
October 2016
Contents
The Bills Digest at a glance
Purpose and structure of the Bill
Background
2016–17 Budget announcement
Implementation of the proposed lower
company tax rates
Table 1: Proposed schedule of
increases to eligibility turnover threshold for access to the lower company tax
rate and in the reduction of the general company tax rate, 2015–16 to 2026–27
Expected effect on existing companies
Figure 1: Cumulative number of
companies meeting proposed turnover thresholds based on 2013–14 data
Table 2: Examples of ASX-listed
companies that have operating revenue within the relevant turnover thresholds,
2014–15
Turnover threshold and other small
business tax concessions
Existing concessions
Impact of changing turnover
threshold
Figure 2: Summary of how the proposed
turnover thresholds interact with existing small business tax concessions that
have a $2 million turnover threshold
Dividend imputation and a changing
company tax rate
Figure 3: Franked dividend growth
from Australian companies, 1989–90 to 2012–13 ($ billion)
History of company tax rate changes
in Australia
Figure 4: Company income tax changes,
1915 to 2001
Reviews, views and responses
Whitlam Government
Howard Government
Rudd and Gillard Governments
2013 election
ALP
Coalition
Australian Greens
Abbott Government
Building on the 2014–15 Budget
changes
Committee consideration
Senate Economics Legislation
Committee
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
parties/independents
Position of major interest groups
Business groups
Other groups
Financial implications
Table 3: Financial impact of measures
proposed by the Bill, 2016–17 to 2019–20 ($ million)
Treasury costings
Parliamentary Budget Office costings
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Schedule 1—reducing the corporate tax
rate
Key provisions
Key issue: impact of the measure on
the economy
Argument in favour of lowering
company tax
Argument against lowering company tax
Economic modelling of reductions in
company tax
Figure 5: Results of Treasury and
Treasury-commissioned economy-wide modelling of the proposed company tax rate
reduction to 25 per cent
Key issue: ‘competitiveness’ of
Australia’s company tax rate
Headline company tax rates in other
countries
Figure 6: Corporate income tax rate,
OECD countries, 2000 and 2016 (per cent)
Other measures of tax competitiveness
Figure 7: Marginal effective tax rate
on corporate investment, selected countries, 2005 and 2014
Importance of the corporate tax rate
in attracting investment
Schedule 2—Tax discount for
unincorporated small businesses
Key provisions
Schedule 3—Access to small business
concessions
Key provisions
CGT small business entity
Threshold for small business entity
Threshold for individuals that are a
small business entity
Key issue: additional complexities in
defining small business
Australian Bureau of Statistics
Other Commonwealth usage
Tax law
Schedule 4—amendments relating to
imputation
Key provisions
Table 4: Examples of the company tax
rate for imputation purposes under different turnover assumptions for 2017–18
Schedule 5—other consequential
amendments
Concluding comments
Date introduced: 1
September 2016
House: House of
Representatives
Portfolio: Treasury
Commencement: Various
commencement dates between 1 July 2016 and 1 July 2026 as set out in the
body of this Bills Digest.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2016.
The Bills Digest at a glance
Purpose of the Bill:
-
the main purpose of the Bill is to implement key elements of the
Government’s 2016–17 Budget ‘Ten Year Enterprise Tax Plan’ including:
- in
2016-17, the company tax rate will be cut, from 28.5 per cent to 27.5 per
cent for companies with an aggregated turnover of less than $10 million.
This $10 million turnover threshold will be progressively lifted over the
period to 2022–23 with the effect that companies with a turnover of
$1 billion or more will be eligible, at that time, for the lower
27.5 per cent rate
- in
2023–24 the threshold will be removed, so that all companies will be subject to
the 27.5 per cent rate
- the
general company tax rate will be reduced from 27.5 per cent to 25 per
cent over the period 2024–25 to 2026–27, and
- the
turnover threshold that applies to determine whether certain small business tax
concessions are available, which is currently $2 million, will be retained
for those applying to certain capital gains tax concessions but will be lifted to
$5 million or $10 million for others.
Policy rationale for reducing the company tax rate:
- the
Government’s proposal to lower the company tax rate is based on several policy goals:
- to
encourage growth and innovation, based on an understanding that small business is
important in generating growth and
- to
attract investment and grow the economy, based on an understanding that lower
company tax rates will make Australia more competitive with other countries as
a place to invest
- any relationship between corporate tax rates and economic
benefits is complex. The role that the level of a country’s company tax rate plays
in competing for investment capital and its importance in contributing to future
economic growth is subject to some disagreement.
Policy position of non-government parties/independents and
interest groups:
- the Australian Labor Party (ALP) and the Australian Greens do not
support the reduction in the company tax rate to 25 per cent. However, the
ALP has indicated that it would support the reduction in the small business
company tax rate to 27.5 per cent for companies with a turnover of less
than $2 million. The Nick Xenophon Team expressed its support prior to the
2016 election for a lift in the small business turnover threshold from $2
million to $10 million
-
business groups have generally welcomed the proposed company tax
rate reductions and the lifting of the turnover thresholds for eligibility to
some of the small business tax concessions to $10 million. However, groups
such as the Australian Council of Trade Unions are opposed to the proposed
company tax rate reductions.
Key issues:
-
economic modelling by the Treasury and Treasury-commissioned
consultants supports the Government’s underlying rationale that company tax
cuts will improve economic growth. However, economic modelling has limited
usefulness depending on the degree of simplifying assumptions made and the
extent to which real events diverge from the simplified model
- Australia’s company tax rate is higher than that of many advanced
economies. The extent to which investment benefits from lowering the rate is
open to some debate.
Purpose and
structure of the Bill
The purpose of the Treasury Laws Amendment (Enterprise Tax
Plan) Bill 2016 (the Bill) is to amend the Income Tax Rates
Act 1986 and the other related taxation legislation to implement the
Government’s 2016–17 Budget commitment to progressively reduce company tax
rates for small and large companies over a 10-year period.
The Bill is divided into five Schedules which implement
different elements of the company tax rate reduction:
- Schedule 1—amends the Income Tax Rates Act to reduce the company
tax rate and adjust the turnover eligibility thresholds for which the lower
company tax rates apply over the period 2016–17 to 2026–27
- Schedule 2—amends the Income Tax
Assessment Act 1997 (ITAA 1997) to apply an equivalent
tax discount for unincorporated small businesses as the company tax rate is
reduced
- Schedule 3—amends the ITAA 1997 to increase the turnover
threshold for access to some of the small business tax concessions from
$2 million to $10 million
- Schedule 4—makes consequential amendments to the dividend
imputation arrangements in the ITAA 1997 to adjust imputation credits as
the company tax rate changes
-
Schedule 5—makes consequential amendments to provisions that
directly cite the relevant company tax rate (including examples) in the ITAA
1997 and the Income
Tax Assessment Act 1936 (ITAA 1936).
Background
2016–17
Budget announcement
The provisions of the Bill implement the Government’s
2016–17 Budget announcement—packaged as elements of the measure titled ‘Ten
Year Enterprise Tax Plan’—to progressively reduce company tax rates from the
current rates of 28.5 per cent for small business (as defined using a
turnover threshold of $2 million) and 30 per cent for other
businesses, down to 25 per cent for all companies by 2026–27.[1]
Announcing the measure in his budget speech, the Treasurer noted
several arguments in favour of the company tax rate reduction including the
importance of small business in providing growth, the use of the tax system to
encourage this growth and innovation and the international competitiveness of
Australia’s company tax system, noting:
Small and medium businesses are driving jobs growth in
Australia and must continue to do so. They are also overwhelmingly Australian
owned and more likely to reinvest their earnings in future growth, as they seek
to build their businesses. A tax on their business is a tax on their enterprise
and the jobs they provide.
... Tonight we go further and share the ambition for smaller
businesses to become bigger businesses.
... We will not be able to rely on our natural advantages in
resources to secure the jobs of the future like we have in the past. If we wish
to continue to see our living standards rise with more jobs and higher wages,
we need to ensure our tax system encourages investment and enterprise.
Australia has the seventh highest company tax rate of the 34
OECD countries and it is much higher than our neighbours in the Asian region.[2]
Some of these arguments were repeated by the Treasurer at
the introduction of the Bill in September 2016. In particular, he noted that
workers would also benefit through higher real wages:
This Bill forms a key component of the government's reform
agenda to improve Australia's tax system for businesses and to drive investment
in our economy as it transitions from the investment phase of the mining boom,
as it is successfully doing, to broader based growth. The actions contained in
this Bill will provide the encouragement needed for Australian businesses to
grow and create jobs.
... These amendments will enable Australian businesses to
reinvest more of their earnings in employing more Australians and growing their
businesses—this will benefit all Australians. This will drive investment,
allowing us to keep our living standards high and improve wages.
Since 2001, Australia has gone from having one of the lowest
corporate tax rates in the world to now offering one of the highest. There are
only five advanced countries with higher corporate tax rates than Australia, I
am advised.
This Bill therefore is an important step for Australia—it
will allow Australian businesses to once again be globally competitive on tax.
It will assist our businesses to succeed both at home and internationally. And
it will encourage businesses to remain in, or relocate to, Australia.
We are improving the tax system for business and better
aligning it with a culture of business investment and development to foster
jobs and growth. As productivity rises, more than half the economic benefits of
a lower company tax rate will go to workers in the form of higher real wages.[3]
Further discussion about whether Australia's tax rates are
uncompetitively high is set out under the heading ‘Competitiveness’ of
Australia's company tax rate, below.
Implementation
of the proposed lower company tax rates
The reduction in company tax rates for small and large companies
will be implemented in two phases. The first phase commences in the financial
year 2016–17 and involves increasing the threshold at which the small business
company tax rate applies. It proposes that by the financial year 2023–24 the
small business company tax rate of 27.5 per cent will apply to a company with a
turnover of up to $1 billion. The second phase commences in the financial year
2023–24 and will see the threshold removed and the progressive reduction of the
tax rate for all companies. Table 1 sets out the manner in which the reduction
in the tax rate will occur.
Table 1: Proposed
schedule of increases to eligibility turnover threshold for access to the lower
company tax rate and in the reduction of the general company tax rate, 2015–16
to 2026–27
| Income year |
Turnover threshold |
Lower company
tax rate for those companies meeting turnover threshold |
General company
tax rate |
| 2015–16 |
$2 million |
28.5% |
30% |
| 2016–17 |
$10 million |
27.5% |
30% |
| 2017–18 |
$25 million |
27.5% |
30% |
| 2018–19 |
$50 million |
27.5% |
30% |
| 2019–20 |
$100 million |
27.5% |
30% |
| 2020–21 |
$250 million |
27.5% |
30% |
| 2021–22 |
$500 million |
27.5% |
30% |
| 2022–23 |
$1 billion |
27.5% |
30% |
| 2023–24 |
threshold removed |
27.5% |
| 2024–25 |
not applicable |
27% |
| 2025–26 |
not applicable |
26% |
| 2026–27 |
not applicable |
25% |
Source: Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, p. 11.
Expected
effect on existing companies
Information compiled by the Australian Taxation Office (ATO)
shows that in 2013–14, almost all companies (98 per cent) would have been
subject to the lower small business company tax rate at a turnover threshold of
$10 million (Figure 1). Further increases to the turnover threshold only
marginally change the number of companies paying the lower 27.5 per cent
tax rate.
Figure 1: Cumulative
number of companies meeting proposed turnover thresholds based on 2013–14 data
Source: Australian Taxation Office (ATO),
Taxation
statistics 2013–14, Companies, Table 6: Selected items, for the 2013–14 income
year, ATO website.
Examples of Australian Securities Exchange-listed companies
that may fall within each of the turnover thresholds are shown in Table 2.
Table 2: Examples
of ASX-listed companies that have operating revenue within the relevant turnover
thresholds, 2014–15
|
Turnover threshold range
|
Examples of companies within
this threshold (including ASX code)
|
|
$10 million to $25 million
|
Class Limited (CL1), Medtech Global Limited (MDG), HiTech
Group Australia Limited (HIT), Universal Biosensors, Inc. (UBI) and Pharmaxis
Ltd (PXS).
|
|
$25 million to
$50 million
|
Nanosonics Limited (NAN), Think Childcare Limited (TNK), Compumedics
Limited (CMP), Brisbane Broncos Limited (BBL) and Sea Farms Group Limited
(SFG)
|
|
$50 million to $100 million
|
NetComm Wireless Limited (NTC), Buderim Group Limited
(BUG), Cellnet Group Limited (CLT), Pacific Smiles Group Limited (PSQ) and Panterra
Gold Limited (PGI).
|
|
$100 million to $250 million
|
Baby Bunting Group Limited (BBN), Sirtex Medical Limited
(SRX), Cabcharge Australia Limited (CAB), Hansen Technologies Limited (HSN)
and Capilano Honey Limited (CZZ).
|
|
$250 million to $500 million
|
Salmat Limited (SLM), Tassal Group Limited (TGR), MYOB
Group Limited (MYO), Mayne Pharma Group Limited (MYX) and Regional Express Holdings
Limited (REX).
|
|
$500 million to $1 billion
|
Slater & Gordon Limited (SGH), Blackmores Limited
(BKL), Warrnambool Cheese and Butter Factory Company (WCB), K&S
Corporation Limited (KSC) and Southern Cross Media Group Limited (SXL)
|
|
$1 billion+
|
Wesfarmers Limited (WES), Woolworths Limited (WOW), Qantas
Airways Limited (QAN), Aristocrat Leisure Limited (ALL), Bega Cheese Limited
(BGA), Downer EDI Limited (DOW) and Billabong International Limited (BBG).
|
Note: For the purposes of this table, a company’s operating
revenue is assumed to be largely equivalent to the definition of turnover for
the purposes of the proposed company tax rate thresholds.
Source: MorningStar DatAnalysis.
Turnover
threshold and other small business tax concessions
There are a range of tax concessions currently available to
small business that are based on an annual turnover threshold of
$2 million (although other conditions may also apply). These include:
-
a company tax rate of 28.5 per cent rather than 30 per
cent (and for unincorporated small businesses, a tax discount of five per
cent, capped at $1,000)[4]
- four
different capital gains tax (CGT) concessions:
- 15–year
exemption—the capital gain on an asset continuously owned for 15 years
asset may be disregarded
- 50 per
cent reduction—a capital gain applying to an ‘active’ asset may be reduced by
50 per cent
- retirement
exemption—a capital gain may be disregarded if the proceeds are used in
connection with retirement (a lifetime limit of $500,00 also applies)
- roll‑over—allows
for the deferral of a capital gain
- certain amounts associated with the CGT concessions can be
contributed to superannuation without being counted in the non-concessional
contributions cap (subject to a lifetime limit)
-
a simplified and concessional depreciation regime including
pooling of assets, access to the instant asset write-off threshold of
$20,000 (to 30 June 2017) and
- car
parking provided to employees may be exempt from fringe benefits tax (FBT).[5]
The proposed higher turnover threshold as it applies to the
lower company tax rate will interact with some, but not all, of the other small
business tax concessions that use the existing $2 million threshold. In
broad terms, most of the existing tax concessions based on the $2 million threshold
will be retained under the $10 million threshold from 2016–17.
The tax discount for unincorporated small
business entities will be based on a fixed $5 million turnover threshold
and the existing capital gains tax concessions will continue to be based on a
$2 million turnover threshold (Figure 2).
Figure 2: Summary of how the proposed turnover thresholds interact with
existing small business tax concessions that have a $2 million turnover
threshold
Note: (a) The lower company tax rate under existing
arrangements is 28.5 per cent. The proposed arrangements would see this rate
reduced to 27.5 per cent for companies below the higher $10 million
turnover threshold in commencement year. This threshold would increase
incrementally from year-to-year to $1 billion by 2022–23. (b) Under existing
arrangements the tax discount is five per cent (capped at $1,000). Under the
proposed arrangements the tax discount rises to eight per cent in 2016–17 and
then increases progressively from 10 per cent in 2024–25 to 16 per cent in
2026–27, but remains capped at $1,000.
Source: Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, pp. 42–43.
Dividend
imputation and a changing company tax rate
Dividends represent a distribution of a company’s profits
to its shareholders. In Australia, companies can attach ‘franking credits’ to
their dividends, which reflect the amount of tax already paid by the business.
Companies that frank their dividends pay the corporate tax rate on their profit
and distribute the remainder to shareholders. The shareholder receives the
credit for the tax already paid by the company and is then only required to pay
any ‘extra’ tax to match their individual tax obligations. This is called
dividend imputation.
The imputation system is designed to avoid ‘double taxation’
of company profits, whereby a company’s profit is taxed, and then dividends to
shareholders are taxed again.[6]
In broad terms, franked dividends from Australian companies
have grown significantly in the past two decades, with a stagnation of
unfranked dividends (Figure 3).
When the company tax rate for small incorporated businesses
was lowered to 28.5 per cent from 1 July 2015, a 30 per cent
‘franking credit’ was retained. The effect was that taxpayers who received
dividends from small incorporated businesses in which they were a shareholder
did not have to distinguish between those franked dividends and any others they
might have received in a financial year.
Figure 3: Franked
dividend growth from Australian companies, 1989–90 to 2012–13 ($ billion)
Source: K Davis, Funding
Australia’s future: dividend imputation and the Australian financial system: what
have been the consequences?, Australian Centre for Financial Studies, [Melbourne], October
2015, p. 11.
The proposal included in the Bill is to move to an
imputation credit system where the franking credit is based on the company’s
turnover in the year prior to the distribution of the franked dividend.
Therefore, in general, the franking credit rate will fall from the general
company tax rate of 30 per cent to reach 27.5 per cent by 2023–24,
when all companies would have a franking rate of 27.5 per cent.
These arrangements will lead to some companies facing a
difference in the year that they qualify for the lower company tax rate as the
turnover threshold progressively rises in the franking rate of 30 per cent and
the lower company tax rate of 27.5 per cent. This may create some
additional incentives to utilise the higher franking rate in paying dividends
to shareholders, as this differential would only apply for one year. This is
discussed further later in this Bills Digest.
History of
company tax rate changes in Australia
The taxation of companies as separate entities in Australia
first commenced in 1915.[7]
The company tax rate has been progressively reduced over time, decreasing from
a high of 49 per cent in 1986 to the current general rate of 30 per cent.[8]
A summary by the Treasury noted that company tax rate reductions had largely
corresponded with base broadening measures, such as the removal of accelerated
depreciation (Figure 4).
Figure 4: Company income tax changes, 1915 to 2001
Source: S Reinhardt and L Steel, ‘A
brief history of Australia’s tax system’, Economic Round-up, Winter
2006, 4 September 2006, p. 17.
Proposals for a lower general company tax rate or for
changes to the small business turnover threshold have been mooted previously
within the general debate about the appropriate rate of company tax.
Whitlam
Government
The earliest of the reviews is known as the Asprey Review.
It was conducted just after changes to a single company tax rate from a system
that imposed a lower rate on the first $10,000 of company income and a higher
rate on amounts above this. The review noted that the previous arrangements ‘may
be seen as a very crude way of providing some relief from the burden of
over-taxation to shareholders in small enterprise’.[9]
Members of the review did not favour a return to such a policy, and with
reference to policies in Canada and the United Kingdom at the time providing
for lower tax to eligible small businesses, noted:
If special provisions are to be made for small enterprises,
the Committee would prefer the Canadian or United Kingdom model rather than a
return to what used to be the Australian law. However, the Committee takes the
view that one should not lightly introduce a new element of non-neutrality into
the company tax system.[10]
Howard
Government
The Review of Business Taxation (known as the Ralph Review)
concentrated on the compliance cost impact on small business and recommended
simplified taxation arrangements for small business (with an annual turnover of
less than $1 million).[11]
Also included in the report of the Ralph Review were recommendations relating
to changed capital gains tax arrangements and a simplified depreciation regime.[12]
Rudd and
Gillard Governments
The most recently completed tax review, known as the Henry
Tax Review, recommended increasing the turnover threshold from $2 million
to $5 million for access to the existing small business tax concessions as
well as a general reduction in the company tax rate to 25 per cent.[13]
On 2 May 2010, as part of its response to the Henry Tax
Review, the Rudd Government announced that it would cut the company tax rate to
28 per cent, with the reduction being phased in from 2012–13 for small
businesses, one year earlier than for other companies.[14]
This announcement also included plans for the Resource Super Profits Tax and an
increase in the instant write‐off threshold from $1,000 to $5,000.[15]
On 2 July 2010, the Gillard Government altered the
company tax cut proposal as part of an amended mining tax—the Minerals Resource
Rent Tax (MRRT). The alteration was necessary due to reduced revenue. That
being the case, the Government announced:
... the company tax rate will continue to be cut to 29 per cent
from 2013–14 but will not be further reduced under current fiscal conditions.
Small companies will benefit from an early cut to the company tax rate to 29
per cent from 2012–13.[16]
Legislation to implement this proposal was, however, never
introduced into the Parliament. Although the legislation to implement the MRRT
passed through both Houses of the Parliament in early 2012, by the time of the
2012–13 Budget in May 2012, the proposal for a company tax cut was abandoned.[17]
One of the reasons for this was that an across-the-board
company tax rate reduction was not supported by the Australian Greens (the
Greens). Their support was limited to a company tax rate cut for incorporated
small businesses only.[18]
2013
election
In the run-up to the 2013 Federal election, each of the
parties proposed to change some elements of the business tax system if they should
win government.
ALP
The 2013 election policies of the ALP did not include any
proposals to change the general company tax rate.[19]
However, policies directed specifically towards small business included
increasing the instant asset write off threshold from $6,500 to $10,000 for eligible
assets purchased between 8 September 2013 and 30 June 2015.[20]
Coalition
The Coalition’s 2013 election policies included a proposal
to cut the company tax rate to 28.5 per cent from 1 July 2015.[21]
However, at the same time the Coalition proposed introducing a paid parental
leave scheme. That scheme was to be funded by a 1.5 per cent levy on
companies with a taxable income in excess of $5 million. The net effect of
the two policies would be that only those companies below this threshold would
effectively face a tax cut.[22]
Australian
Greens
The Greens were the only major party to advocate a lower
company tax rate that would apply only to small business. This policy proposed
a reduction in the company tax rate to 28 per cent from 1 July 2014
for companies with a turnover of under $2 million.[23]
An objective of the policy was to ‘to promote the vitality of the sector and to
encourage more Australians to enter into small businesses’.[24]
Part of the policy was also to increase the instant asset write off threshold
from $6,500 to $10,000.[25]
Abbott
Government
Having won the 2013 Federal election, the Abbott Government considered
the recommendations of a 2014 review of tax impediments facing small business
by the Board of Taxation, which examined whether the $2 million turnover
threshold remained appropriate.[26]
The Board recommended that the threshold be increased to at least
$3 million and that the increase to $5 million be ‘investigated’
largely based on the view that only relatively small numbers of additional
businesses would benefit:
The Board considers that the small business entity
concessions provide important assistance to small businesses but agrees with
stakeholders that eligibility thresholds need to be monitored to ensure that
the concessions remain current and appropriately targeted.
... The statistics show that there may be considerable scope to
increase the turnover threshold without significantly increasing the number of
businesses that can access the concessions. Importantly, this is likely to
reduce the number of businesses that are at or near the turnover threshold and
therefore face the greatest uncertainty. It would also assist those businesses
that operate on a low margin and therefore consider themselves disadvantaged by
the test.[27]
In March 2015, the Government published a discussion paper
as part of the now‑abandoned tax review that raises some specific tax
issues relating to small businesses. These include compliance costs, choice of
business structure and complexity.[28]
In relation to a single lower tax rate for small businesses the discussion
paper included a proposition that a lower single rate (or zero tax rate) could
be put in place to replace multiple tax concessions:
Instead of multiple concessions across the tax system, an
alternative option that could be considered is to apply a lower or zero tax
rate for small businesses. A lower rate that replaced multiple specific
concessions could encourage small businesses to spend their resources expanding
their business, rather than managing their tax affairs.[29]
The discussion paper also noted the high economic costs
associated with company tax and that many countries, including the United
Kingdom and Canada had reduced their company tax rate in recent years.[30]
The Government’s view, as expressed in the discussion paper, was that there
were broader economic benefits associated with a reduction in the company tax
rate:
Reducing Australia’s corporate tax rate would increase
Australia’s appeal as a place to do business. It would encourage higher levels
of investment in Australia and lead to capital deepening, which promotes growth
in productivity, innovation, employment and wages. In the near term, lower
taxes would provide an increased incentive for non-residents to invest in Australia.
In the long run, increased investment would benefit all Australians.[31]
In the 2015–16 Budget, the Abbott Government included a
number of changes to tax arrangements for small business (defined as those
entities with an aggregated turnover of less than $2 million), including a
1.5 percentage point cut in the company tax rate, from 30 per cent to
28.5 per cent, which would take effect from 1 July 2015.[32]
This was consistent with the 2013 election promise.
This measure was legislated by the Tax Laws Amendment
(Small Business Measures No. 1) Act 2015.[33]
The originating Bill for this measure passed the Parliament with bipartisan
support, with the Leader of the Opposition noting in his 2015–16 Budget reply speech:
A 1½ per cent cut for small businesses might be enough to
generate a headline but it is not enough to generate the long-term confidence
and growth our economy needs. Tonight I say: let's go further—let's give small
businesses the sustainable boost to confidence that they deserve, the
confidence to create jobs. I invite you to work with me on a fair and fiscally
responsible plan to reduce the tax rate for Australian small business from 30
to 25 per cent—not a 1½ per cent cut; a five per cent cut. That is the future.
That is confidence.
I understand that this will not be easy, and it may take
longer than the life of one parliament.[34]
Also part of the reduction in the company tax rate was a
recognition that not all small businesses were companies, with the
implementation of a ‘tax discount’ for unincorporated small businesses broadly
equivalent to the small business company tax rate reduction of
1.5 percentage points (capped at $1,000). This measure was implemented by
the Tax Laws
Amendment (Small Business Measures No. 3) Act 2015,[35]
which also applied from 1 July 2015.
Committee
consideration
Senate
Economics Legislation Committee
The Bill was referred to the Senate Economics Legislation
Committee for inquiry and report by 10 October 2016.[36]
The Committee, in its report tabled on 10 October 2016, recommended that
the Bill be passed.[37]
However, in a dissenting report the ALP Senators considered that the company
tax rate should only be reduced to 27.5 per cent and that this rate should be
limited to companies coming within the current $2 million threshold. ALP
Senators also supported a more limited increase to the unincorporated small business
tax discount from five per cent to eight per cent.[38]
Senate
Standing Committee for the Scrutiny of Bills
In its report to the Senate on 14 September 2016, the Senate
Standing Committee for the Scrutiny of Bills made no comment on the Bill.[39]
Policy position
of non-government parties/independents
In his budget reply speech, made shortly after the 2016–17
Budget was handed down, the Leader of the Opposition stated that the ALP would
oppose the reduction in the company tax rate, but that it would support a
reduction in the rate to 27.5 per cent rate from 1 July 2016 for small
businesses with a turnover of less than $2 million.[40]
Mr Shorten noted:
Last year, from this dispatch box, I invited the government
to cooperate on cutting the tax rate for Australian small businesses to 25 per
cent. We meant it then and we stand by it now. Labor will support a tax cut for
small businesses with a turnover of less than $2 million a year—because that is
what a small business is [sic]. We will deliver tax relief for small businesses
representing 83 per cent of all Australian companies.
But billion-dollar businesses are not small businesses—never
have been, never will be. Coles is not a small business. The Commonwealth Bank
is not a small business. Goldman Sachs is not a small business. As important as
they are to our economy, they do not need a taxpayer subsidy which Australia
cannot afford to pay, especially when our imputation system means a cut in the
corporate tax rate delivers no meaningful benefit for mum and dad investors.
The only shareholders who will win out of this live overseas. Labor will
support a tax cut for small business but, unlike the Prime Minister, we will
not use this as a camouflage for a massive tax cut to big multinationals.[41]
Prior to the 2016 election, the Australian Greens did
not support corporate tax cuts and were ‘refusing to join a tax cuts arms race
that will undermine public education, health and welfare’.[42]
The Nick Xenophon Team ‘policy principles’ includes the
policy of supporting a lift in the small business turnover threshold from
$2 million to $10 million ‘to encourage agricultural businesses to
grow as agricultural output expands from individual businesses’.[43]
Position of
major interest groups
Business
groups
Business groups have generally welcomed the Government’s
proposed company tax rate reductions.
In March 2016, the Business Council of Australia
(BCA) proposed a ‘strategy for growth enhancing tax reform’ in a report on tax
arrangements that included a move to a uniform company tax rate of
28.5 per cent in the short term, a rate of 25 per cent by 2020 and
then a further reduction to 22 per cent by 2025.[44]
The BCA’s proposed company tax rate reductions were framed around making the
tax system globally competitive and the benefits that would accrue from a cut
to the economy and workers (through higher real wages).[45]
Following the 2016–17 Budget, the BCA noted that ‘durable budget
repair will not be achieved by increasing the overall tax burden’.[46]
In relation to how the rate reduction would be implemented, the BCA noted:
The government’s 10-year enterprise tax plan is the signal
that Australia’s businesses need to drive greater investment, and create more
jobs, better jobs and higher paid jobs.
It’s an immediate reduction for the small and medium business
that need relief now.
For big business, which operates on longer investment cycles,
it’s an important signal that their investment will be more competitive down
the track.[47]
In its pre-budget submission in February 2016, the Australian
Chamber of Commerce and Industry (ACCI) considered that as part of tax
reform ‘both sides of politics must commit to lowering the corporate tax rate
to an internationally competitive level (currently 25 per cent but potentially
lower in the future) by an agreed date’.[48]
Following the 2016–17 Budget, the ACCI considered that the announced changes
were positive, noting:
With an election looming, this Budget demonstrates that good
policy can also be good politics.
The glide path to a company tax rate of 25 per cent by 2026-27
will make Australia a more appealing destination for international investors
and will encourage Australians to develop their enterprises at home. The
improved productivity from these new investments will create more and better
paying jobs, ensuring that much of the benefit will flow to households.[49]
The Australian Industry Group (AIG) welcomed the
proposed changes following the 2016–17 Budget, noting:
In an important boost to the capacity of businesses to invest
and create jobs, the Budget sets a gradual path to restore the competitiveness
of Australia's company tax system. While the two-tiered company tax system will
continue for a number of years and it will be a decade before the company tax
rate will reach 25%, many small to medium-sized businesses will see more
immediate benefits and face improved incentives to invest. The clear risk
involved in such a gradual phase down is that the international competitiveness
benchmark could well be closer to 20% by 2026-27.[50]
In a separate budget-related media release, the AIG
supported the increase in the small business eligibility threshold to
$10 million, although it had advocated for a $20 million threshold
prior to the Budget.[51]
The Council of Small Business Australia (COSBOA) was also
supportive of raising the turnover eligibility threshold to $10 million,
noting:
This creates a change immediately for government support
actions around tax breaks, instant tax write offs and other initiatives. This
gives more businesses access to the $20,000 instant tax write off announced in
last year’s budget. There is also another tax decrease for these businesses.
This means that tax has decreased 2.5% in 2 years. A good message to send to
businesses who want to grow and employ, or start to export and take advantage
of the global economy.[52]
Other
groups
The Tax Institute supported the announcement of a
reduction in the company tax rate to 25 per cent following the 2016–17
Budget announcement, as well as the lifting of the small business turnover
eligibility threshold.[53]
In its pre-budget submission, the Tax Institute expressed its support for a
reduction in the company tax rate over the medium term to 25 per cent.[54]
In making this proposal, the Institute noted:
A wealth of reliable evidence indicates that the incidence of
company tax falls on employees. This means that reducing the burden of company
tax is expected to result in companies passing on the benefits to their
employees either in the form of increased wages or additional recruitment –
increasing productivity and employment.
A cut in the company tax rate would also reduce taxes on
investment, increasing the incentives for savings and capital as well as
innovation and entrepreneurship – all outcomes that are indisputably in the
interests of all Australians. Such a cut would also reduce the incentive for
profit shifting out of Australia, allowing us to retain a greater share of the
profits generated here in Australia.[55]
The Australian Council of Trade Unions (ACTU) was
critical of the proposed company tax changes following the 2016–17 Budget, stating:
A corporate tax cut is not a jobs plan.
It provides breadcrumbs for youth unemployment which is in
double digit figures – 12 per cent nationally and above 15 per cent in some
local communities like the NSW Central Coast, parts of south-west Sydney,
Townsville and all of South Australia.
The Government’s own budget papers project negative or zero total
business investment over the forward estimates. Where are the jobs coming from?
The Government seems to think providing tax cuts to big
corporations is magically going to create investment or stimulate the economy.
This ‘trickle-down’ logic is a fantasy.[56]
In a March 2016 policy paper, the ACTU did not support
cuts to company tax rates and was also critical of arguments based on the
competitiveness of Australia’s company tax rate:
World-class worker and management skills, infrastructure,
innovation, technology, legal systems and education and training are more
powerful drivers of investment and jobs growth in Australia than corporate tax
rates and all of these rely on revenue from the tax system.
... Much of the new foreign investment entering Australia originates
in China and other regional nations with low company tax rates. Australia’s 30
per cent company tax rate has not deterred these investments. In a world awash
with investible funds and with record low interest rates, there is no
compelling evidence that a further reduction in the cost of foreign capital
through a reduction in the company tax rate would cause the surge in investment
that proponents claim for it.[57]
Instead, the ACTU’s corporate tax proposals focussed on
‘repairing’ the company tax base to deal with base erosion and profit shifting
by multinationals, better targeting of a research and development tax
concession and improved tax transparency through public tax reporting of all
companies with annual turnover of more than $100 million.[58]
Financial
implications
The Explanatory Memorandum notes that the amendments
proposed by the Bill will result in almost $5.3 billion less revenue being
collected over the period 2016–17 to 2019–20 (Table 3).[59]
Table 3: Financial
impact of measures proposed by the Bill, 2016–17 to 2019–20 ($ million)
| Measure |
2016–17 |
2017–18 |
2018–19 |
2019–20 |
Total |
| Phase 1: lift turnover threshold for the lower company tax
rate to $10 million for 2016–17 and then progressively to
$1 billion in 2022–23 after which it will be abolished Phase 2: Reduce corporate tax rate to 27.5% from 2016–17
then further decreases from 2024–25 to reach 25% in 2026–27. |
-400 |
-500 |
-800 |
-950 |
-2,650 |
| Increase tax discount for unincorporated small businesses
to 8% from 2016–17 with further increases from 2024–25 to reach 16% in
2026–27 |
|
-150 |
-150 |
-150 |
-450 |
| Increase small business entity threshold to
$10 million |
-280 |
-700 |
-550 |
-650 |
-2,180 |
| Total |
-680 |
-1,350 |
-1,500 |
-1750 |
-5,280 |
Source: Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, pp. 3–6.
It should be noted that the costings set out in Table 3
above only cover the period of the forward estimates. In accordance with the
provisions of the Bill, by the financial year 2019–20 a lower company tax rate
of 27.5 per cent will apply to entities with a turnover threshold of
$100 million or less—that is, the costings do not factor in the increases
in the turnover threshold in the following three financial years to $250
million, $500 million and
$1 billion respectively. That being the case, the Explanatory Memorandum does
not quantify the total of the revenue lost over the period up to the point that
the 25 per cent tax rate begins to apply.
Treasury
costings
A 10-year costing of the two measures to lift the small
business entity threshold and reduce the company tax rate to 25 per cent
by 2026–27 was provided to the Senate Economics Legislation Committee on
6 May 2016 by the Secretary of the Treasury.[60]
This Treasury costing put the cost of the measures to 2026–27 at
$48.2 billion in cash terms. It is important to note that this figure
excludes other measures in the Bill such as the increase in the tax discount
for unincorporated small businesses.
Parliamentary
Budget Office costings
A Parliamentary Budget Office (PBO) costing of the ALP policy
to ‘not proceed with big company tax cuts’ was included in the PBO’s
post-election report of 2016 election commitments. This PBO costing, covering
the period to 2019–20 put savings associated with the policy (which does not
include the small business company tax reduction to 27.5 per cent from 1
July 2016 and the equivalent increase in the tax discount for unincorporated
small businesses) at around at $4.4 billion in cash terms.[61]
The more detailed PBO costing of this ALP policy over the 10 years to
2026–27 puts the savings at around $50 billion.[62]
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth)[63],
the Government has assessed the Bill’s compatibility with the human rights and
freedoms recognised or declared in the international instruments listed in
section 3 of that Act. The Government considers that the Bill is compatible.[64]
Parliamentary Joint
Committee on Human Rights
The Parliamentary Joint Committee on Human Rights considers
that the Bill does not raise human rights concerns.[65]
Schedule 1—reducing
the corporate tax rate
Key
provisions
Schedule 1 to the Bill is comprised of 12 Parts
arranged in a chronological fashion to implement the relevant changes for each
year over the period 2016 to 2026—that is the proposals in Part 1 of Schedule 1
commence on 1 July 2016, the proposals in Part 2 of Schedule 1 commence on 1
July 2017 and so on with the proposals in Part 11 of Schedule 1 to
commence on 1 July 2026. Parts 1–11 amend the Income Tax Rates Act
whilst Part 12 contains relevant application provisions.
Currently, section 23 of the Income Tax Rates Act
sets out the rates of tax payable by companies. Item 1 of Part 1 in
Schedule 1 amends paragraph 23(2)(a) of the Income Tax Rates Act, with
effect from 1 July 2016, to reduce the rate of tax in respect of the taxable
income of the company that is a small business entity from
28.5 per cent to 27.5 per cent.[66]
The 30 per cent rate for a company that is not a small business
entity is retained.
Items 2 and 3 of Part 1 of Schedule 1 amend
paragraphs 23(3)(b) and 23(4)(c) of the Income Tax Rates Act to apply
this lower tax rate to a company that is a retirement savings account (RSA)
provider and a company that is a Pooled Development Fund (PDF) respectively.[67]
Item 4 of Part 1 of Schedule 1 amends subparagraph
23(6)(b)(i) of the Income Tax Rates Act which relates to the tax payable
by a company that is a non-profit company. The effect of the amendment is that
for the 2016–17 financial year the rates of tax payable by a non-profit company
that is a small business entity are nil for the first $416 of taxable
income, 55 per cent for the next $416 of taxable income and 27.5 per cent for
all taxable income thereafter.
Item 5 of Part 1 of Schedule 1 amends paragraph
23(7)(a) of the Income Tax Rates Act which relates to the tax payable by
a company that is a recognised medium credit union. According to the
Explanatory Memorandum for the Bill:
A credit union is a recognised medium credit union if,
broadly, its notional taxable income is between $50,000 and $150,000. A
recognised medium credit union is subject to an effective tax rate based on a
sliding scale, according to its level of taxable income.[68]
The amendment operates so that the amount of tax payable
by a recognised medium credit union that is a small business entity
is reduced from 42.75 per cent to 41.25 per cent for taxable income that
exceeds $49,999.
Item 6 of Part 1 of Schedule 1 amends paragraph
25(a) of the Income Tax Rates Act which relates to the tax payable by a
the trustee of a public trading trust. Where the trust is a small business
entity the rate of tax payable is reduced to 27.5 per cent.
The amendments in Part 2 of Schedule 1 are to
commence from 1 July 2017. Item 13 inserts proposed section 23AA into
the Income Tax Rates Act to define the term base rate entity.
A base rate entity is an entity which, in a year of income,
carries on business and has an aggregated turnover of less than
$25 million. Items 8–12 and 14 of Part 2 in Schedule 1 to the Bill
repeal and replace references to a small business entity in
sections 23 and 25 of the Income Tax Rates Act with references to a base
rate entity. This term will be used to determine which entities meet
the turnover threshold that applies to the lower company tax rate over the
period to 2023–24 when the threshold is abolished and a single rate of company
tax applies.
Items 16–20 in Schedule 1 amend proposed
paragraph 23AA(b) of the Income Tax Rates Act to increase this
threshold progressively from the $25 million threshold in 2017–18 to reach
$1 billion in 2022–23.
Part 8 of Schedule 1, which is to apply from 1 July
2023, includes those amendments required to move to a single company tax rate
of 27.5 per cent for all entities for the financial year 2023–24. This
includes repealing the definition of base rate entity (at item
21) and section 23AA (at item 28) that were used as the turnover
threshold was progressively raised.
Parts 9 to 11 of Schedule 1 include the
relevant amendments to then reduce the single company tax rate from the
27.5 per cent rate that applies in 2023–24, to 27 per cent in
2024–25, 26 per cent in 2025–26 and then 25 per cent from 2026–27
onwards. Amendments to paragraph 23(6)(b) (about non-profit companies),[69]
subsection 23(7) (about recognised medium credit unions)[70]
and section 25 (about the tax payable by a trustee of a public trading trust)
of the Income Tax Rates Act are also made to ensure that the tax payable
is equivalent to the general company tax rate.[71]
Key issue: impact
of the measure on the economy
Part of the Government’s argument for lowering the company
tax rate is that it will support economic growth by enabling Australian
businesses to reinvest more of their earnings to support higher levels of
employment, investment and higher wages.[72]
Argument in
favour of lowering company tax
This view was also put by former Treasurer Swan, who noted
in May 2010, shortly after the Rudd Government had included a budget measure to
reduce the company tax rate from 30 per cent to 28 per cent:
Our plan will also improve the competitiveness of the entire
economy. It will deliver a company tax rate cut for all companies.
... These changes promote growth across the entire economy,
giving some of our other industries a better chance to compete on the world
stage, even with the continued success of our resource industry.[73]
Any relationship between corporate tax rates and economic
benefits is complex. The research is not conclusive and support can be found
for various views. Those noting the benefits to economic growth of a lower rate
included the Henry Tax Review (which recommended lowering the rate to
25 per cent over the short to medium term). The Henry Tax Review noted:
Reducing taxes on investment, particularly company income
tax, would also encourage innovation and entrepreneurial activity. Such reforms
would increase income for Australians by building a larger and more productive
capital stock, and by generating technology and knowledge spillovers that boost
the productivity of Australian businesses. A lower company income tax rate
would also reduce incentives for foreign multinationals to shift profits out of
Australia.[74]
The OECD also offered some support to the link between
corporate tax rates and growth in a 2010 report, Tax
Policy Reform and Economic Growth, which examined the growth impacts of
various taxes (such as property and consumption taxes) based on their
distortionary nature.[75]
The OECD’s view on corporate taxation noted:
Corporate income taxes are the most harmful for growth as
they discourage the activities of firms that are most important for growth:
investment in capital and productivity improvements. In addition, most
corporate tax systems have a large number of provisions that create tax
advantages for specific activities, typically drawing resources away from the
sectors in which they can make the greatest contribution to growth. However,
lowering the corporate tax rate substantially below the top personal income tax
rate can jeopardize the integrity of the tax system as high-income individuals
will attempt to shelter their savings within corporations.[76]
Argument
against lowering company tax
The role that the level of a country’s company tax rate
plays in increasing economic growth is subject to some disagreement. In a March
2016 paper, Company
tax cuts: What the evidence shows[77],
the Australia Institute made comparisons between OECD country company tax rates
and economic growth and long-term analysis of investment and growth in the
Australian economy to examine these links. The Institute was critical of calls
for reductions in the company tax rate to stimulate growth, concluding:
[T]here is no evidence to suggest that lower rates increase
economic growth. Secondly, a historical analysis of Australia’s own corporate
tax rate shows that, if anything, lower rates have a negative impact on the
kind of economic indicators spruiked by their proponents.
... The evidence presented here suggests that if there are any
growth dividends of lowering the company tax rate they are so weak as to be
outweighed by other factors. Neither cross-country comparison nor Australia’s
own history lend any support to the ‘tax-cuts-are-good’ thesis. If the aim
really is increased economic growth, then Australians would be better advised
to ignore the business lobby’s call for lower company tax rates and look
seriously at other policies.[78]
Economic
modelling of reductions in company tax
Treasury released modelling at the time of the 2016–17 Budget
that examined the impact of the proposed company tax rate reduction on the economy.[79]
The impact was modelled assuming budget neutrality, with three different
scenarios considered to offset the budget cost of lowering the company tax
rate. These were that the cost is met through changes in government spending
(assumption 1), changes in personal income tax (assumption 2) and changes in
non-distortionary taxes (assumption 3). In addition to their own modelling,
Treasury also commissioned modelling by two consultants—Independent Economics
and KPMG.[80]
Included in the Treasury modelling report were the results
of the modelling by Treasury and the two consultants. These results generally
showed gains in economic activity, investment, wages and household consumption associated
with the company tax reduction (Figure 5).
Figure 5: Results
of Treasury and Treasury-commissioned economy-wide modelling of the proposed
company tax rate reduction to 25 per cent
Note: The various scenarios are for the cost of reducing the company tax rate
being met through changes in government spending (assumption 1), changes in
personal income tax (assumption 2) and changes in non-distortionary taxes
(assumption 3). IE = Independent Economics.
Source: The Treasury, ‘Economy-wide
modelling for the 2016-17 Budget’, The Treasury website, 3 May 2016,
p. 4.
Criticisms of these modelling exercises have been made at
a number of levels including that assumptions made in some of the modelling,
such as the ‘morality dividend’ associated with the tax rate reduction—the
level of additional tax voluntarily paid by companies due to their assumed
reluctance to engage in profit shifting—may be unrealistic.[81]
An alternative modelling exercise on the impact of a
reduction in the company tax rate by the Centre for Policy Studies at Victoria
University in April 2016, which explicitly took account of the dividend
imputation system, concluded that a cut in the company tax rate would have a
positive impact on the rate of economic growth. However, this modelling, which
did not make assumptions about how the cost of the cut was funded noted:
The cut in company tax stimulates GDP by increasing the
post-tax return to investment, which leads to a long term increase in the
capital stock. With more capital stock in place, there will be an increase in
both output and real wages. So far, a cut in the company tax rate looks like a
winner. However, we have three concerns. The first is that foregone taxation
revenue will add to government deficits, creating pressure for spending to be
cut or alternative taxes to be raised. The second is that the cost of
additional capital stock will add to the current account deficit, and should
not be treated as manna from heaven. This leads to our final concern, which is
our finding that despite the expected increase in GDP, real national income
will fall under a cut to company tax.[82]
While these economic modelling exercises are useful in
understanding the potential impacts of policy changes on different parts of the
economy, they are of limited use for policy makers depending on the degree of
simplifying assumptions made and the extent to which real events diverge from
the simplified model. The International Monetary Fund notes:
All economic models, no matter how complicated, are
subjective approximations of reality designed to explain observed phenomena. It
follows that the model’s predictions must be tempered by the randomness of the
underlying data it seeks to explain and by the validity of the theories used to
derive its equations.
... No economic model can be a perfect description of reality.
But the very process of constructing, testing, and revising models forces
economists and policymakers to tighten their views about how an economy works.
This in turn promotes scientific debate over what drives economic behavior and
what should (or should not) be done to deal with market failures.[83]
Key issue: ‘competitiveness’
of Australia’s company tax rate
One of the arguments put by the Government in lowering the
company tax rate is that the current Australian company tax rate is
‘uncompetitive’, with the rate being higher than that of other countries which
may be competing for investment opportunities.[84]
Introducing the Bill, the Treasurer noted:
Since 2001, Australia has gone from having one of the lowest
corporate tax rates in the world to now offering one of the highest. There are
only five advanced countries with higher corporate tax rates than Australia, I
am advised.
This Bill therefore is an important step for Australia—it
will allow Australian businesses to once again be globally competitive on tax.
It will assist our businesses to succeed both at home and internationally. And
it will encourage businesses to remain in, or relocate to, Australia.[85]
Assessments about the competitiveness of Australia’s
company tax rate can be based on a number of different measures. There are a
range of views about the importance of the level of the company tax rate in
attracting investment and about whether such a focus should be pursued.
At a high level, some economists have criticised the
notion of ‘competition’ between nations when used in a similar context of
competition between firms. Professor Paul Krugman noted in 1994:
The idea that a country's economic fortunes are largely
determined by its success on world markets is a hypothesis, not a necessary
truth; and as a practical, empirical matter, that hypothesis is flatly wrong.
That is, it is simply not the case that the world's leading nations are to any
important degree in economic competition with each other, or that any of their
major economic problems can be attributed to failures to compete on world
markets. The growing obsession in most advanced nations with international
competitiveness should be seen, not as a well-founded concern, but as a view
held in the face of overwhelming contrary evidence.
... [T]rying to define the competitiveness of a nation is much
more problematic than defining that of a corporation. The bottom line for a
corporation is literally its bottom line: if a corporation cannot afford to pay
its workers, suppliers, and bondholders, it will go out of business. So when we
say that a corporation is uncompetitive, we mean that its market position is
unsustainable—that unless it improves its performance, it will cease to exist.
Countries, on the other hand, do not go out of business. They may be happy or
unhappy with their economic performance, but they have no well-defined bottom
line. As a result, the concept of national competitiveness is elusive.[86]
Headline
company tax rates in other countries
The ‘headline’ company tax rate is the tax rate that applies
to company profit, not taking into account the ability of companies to take
advantage of tax deductions that may apply within a country. A simple
comparison of the headline company tax rates that apply in selected OECD
countries shows that company tax rates have come down since 2000 in almost
all OECD countries but that Australia’s rate of 30 per cent is at the
higher end, exceeded only by the United States, France, Belgium, Italy and
Germany (Figure 6).
Figure 6:
Corporate income tax rate, OECD countries, 2000 and 2016 (per cent)
Source: OECD, ‘Tax database: table II.1.
corporate income tax rate’, OECD website.
It should be noted however that a number of countries have
already implemented further reductions in their company tax rates to come into
effect in future years. These countries include:
- a proposed reduction in the company tax rate in the UK to less
than 15 per cent (currently legislated to fall to 17 per cent in
2020) following the Brexit referendum[87]
and
- a
reduction in the company tax rate in Spain from the current 28 per cent to
25 per cent in 2016.[88]
Other
measures of tax competitiveness
A broader measure of tax competiveness is provided in an
annual publication by the Tax Foundation that examines competitiveness based on
headline corporate, property and other tax rates as well as a more subjective
assessment of a country’s international tax rules. In the Foundation’s
assessment of 2015 arrangements, while Australia was ranked 25 out of
34 OECD member countries on the basis of the headline company tax rate,
overall Australia was ranked seventh.[89]
Another measure for making international comparisons of how
attractive the company tax environment is for investment is to use the
‘marginal effective cost of capital on corporate investment’, which identifies
the tax cost of the next dollar of investment by a company, taking account of
the nominal tax rate, expense and depreciation deductions and the tax treatment
of debt and equity finance.[90]
Based on this measure, which incorporates broader features of the tax system,
Australia still has tax rates at the higher end compared to other countries
(Figure 7).
Figure 7: Marginal
effective tax rate on corporate investment, selected countries, 2005 and 2014
Source: D Chen and J Mintz, ‘The 2014
global tax competitiveness report: a proposed business tax reform agenda’, University
of Calgary: The School of Public Policy, 8(4), 6 February 2016, p. 6.
Importance
of the corporate tax rate in attracting investment
There is a body of academic literature that has made
assessments about whether the corporate tax rate is an important determinant in
attracting investment and whether previous downward shifts in rates by
individual countries have been associated with increased investment.
In the discussion about corporate tax rate competitiveness
using the example of the US auto industry, Michael Knoll distinguished between
investment choices made by a multinational company looking to make a specific
investment across several countries—where the relatively high US corporate tax
rate discouraged investment in the US in favour of investment abroad—and the
incentives for the holders of capital looking to allocate investments across a
range of countries in any type of asset.[91]
For the latter type of investment, tax considerations were seen to favour
investment through the lowest taxed entity, which needed to take account of tax
rates in different countries but also crediting arrangements for foreign source
income in countries where corporations were domiciled.
A 2010 study of corporate taxes on investment and
entrepreneurship summarised much of the previous academic work on the issue, noting
a number of studies since the early 1960s and making the general statement that
‘this research finds adverse effects of corporate income taxes on investment,
although studies offer different estimates of magnitudes’.[92]
Using data on effective corporate income taxes in 85 countries in 2004,
the authors found that (their estimates of) the effective corporate tax rate has
a large adverse impact on aggregate investment, foreign direct investment, and
entrepreneurial activity and that higher effective corporate income taxes are
also associated with lower investment in manufacturing but not in services, a
larger unofficial economy, and greater reliance on debt as opposed to equity
finance.[93]
Schedule
2—Tax discount for unincorporated small businesses
Key provisions
According to the Explanatory Memorandum:
The small business income tax offset was introduced in the
2015–16 income year as part of a range of tax measures to help small business
in the 2015–16 Budget. It entitles individuals who are small business entities,
or who are liable to pay income tax on a share of the income of a small
business entity, to a tax offset equal to 5 per cent of their basic income tax
liability that relates to their total net small business income, capped at $1,000.[94]
Schedule 2 of the Bill includes the necessary
amendments to subsection 328–360(1) of the ITAA 1997 to increase the
rate of the tax discount for unincorporated small businesses to reflect the
lowering of the company tax rate. Item 1 of Part 1 of Schedule 2 to the
Bill amends subsection 328–360(1) of the ITAA 1997 to increase the tax
discount rate from the current 5 per cent to 8 per cent with effect from 1
July 2016 so that the higher rate applies to the 2016–17 financial year and subsequent
years.
Item 2 of Part 2 of Schedule 2 amends subsection 328–360(1)
of the ITAA 1997 to increase the tax discount rate from 8 per cent
to 10 per cent with effect from 1 July 2024 so that the higher rate applies to
the 2024–25 financial year.
Item 3 of Part 3 of Schedule 2 increases the discount
rate to 13 per cent from 1 July 2025. It will be increased again to
16 per cent from 1 July 2026 by item 4 of Part 4. Importantly,
despite the rate of the discount increasing, it will remain capped at $1,000.[95]
Schedule
3—Access to small business concessions
Key
provisions
Small businesses are eligible for a range of tax concessions
to reduce their tax liability and cost of compliance. Currently, entities can
access these concessions if they are carrying on a business and have aggregated
turnover of less than $2 million.[96]
Schedule 3 of the Bill amends the ITAA 1997 to adjust the
turnover threshold for access to most small business tax concessions.
CGT small
business entity
Items 1 to 13 relate to the continued use of
the $2 million turnover threshold for eligibility to the capital gains tax
(CGT) concessions. To this end, proposed subsection 152-10(1AA) is
inserted into the ITAA 1997 to create the new term CGT small
business entity to ensure that the $2 million threshold continues
to apply for small business capital gains tax (CGT) concessions.
Threshold
for small business entity
The $2 million threshold which is used as the basis for
access to various ‘small business’ thresholds is established in Division
328 of the ITAA 1997, where the term small business entity
is defined to be an entity that has an ‘aggregated turnover’ of less than
$2 million in an income year.[97]
Items 15, 17 and 18 amend section 328–110 to increase the aggregated
turnover amount from $2 million to $10 million with effect from 1 July 2016.
Threshold
for individuals that are a small business entity
Item 19 of Schedule 3 repeals and replaces section
328–350 of the ITAA 1997. The amendment provides a summary of
Subdivision 328-F of the ITAA 1997, which relates to the small business
income tax offset. Proposed section 328-350 explains that under
Subdivision 328-F, an individual may be entitled to a tax offset if:
- they
are a small business entity or
- their assessable income includes a share of the net small
business income of an unincorporated small business entity or
-
their assessable income includes an amount because they are a
partner in a partnership, or a beneficiary in a trust that is a small business
entity.
Proposed section 328-350 provides that in determining
whether an entity is a small business entity for the purposes of the tax offset,
proposed section 328-357 imposes a $5 million turnover threshold.
Key issue:
additional complexities in defining small business
There are a number of definitions used to describe a small
business including statistical definitions and for other regulatory
purposes. The proposed changes may add to the complexity of definitions.
Australian Bureau of Statistics
The key definition of small business used by
the Australian Bureau of Statistics (ABS) is largely based on the number of
employees, with a small business defined as an ‘actively trading business with
0–19 employees’.[98]
Based on this definition, there were around two million small businesses
as at 30 June 2014, accounting for 97 per cent of businesses in Australia.[99]
Of these small businesses, around 62 per cent were non-employing
businesses, 28 per cent had one to four employees and ten per cent
had five to 19 employees.[100]
Other Commonwealth usage
There are a number of other definitions that are used in
other Commonwealth laws and programs. These include:
- Privacy Act 1988—defines a small business as
one whose annual turnover for the previous financial year is $3 million or
less[101]
- Australian Securities and Investments Commission Act 2001—defines
a small business as a business employing less than 100 people if
the business is, or includes, the manufacture of goods, or a business employing
less than 20 people otherwise[102]
and
- Fair Work Act 2009—defines a small business employer
as an employer with fewer than 15 employees.[103]
In addition, the Small Business Superannuation Clearing
House, a free service provided by the ATO to receive superannuation
contributions by ‘small business’ uses a threshold of 19 employees or a
turnover threshold of $2 million.[104]
Tax law
A key element of the creation in 2007 of a standardised
$2 million turnover threshold to define a small business for tax purposes
was to simplify what were five separate small business tests that applied at
the time to various tax concessions.[105]
Announcing the measure in November 2006, the then Treasurer and the Minister
for Small Business and Tourism, Peter Costello, noted:
Small businesses will only have to apply one eligibility test
to access a range of small business concessions. This demonstrates again the
Government’s commitment to reducing red tape and compliance costs for small
businesses.[106]
From 1 July 2016, the amendments in the Bill operate to
create three different turnover thresholds—that is, the retention of the
$2 million threshold for capital gains tax concessions, the
$5 million threshold which will apply to the tax discount for
unincorporated small businesses and the $10 million threshold for entitlement
to a lower company tax rate.
This multiplicity of thresholds applying to small
business may create additional complexity, reversing the simplification
that was implemented a decade ago.
Schedule
4—amendments relating to imputation
Key
provisions
Schedule 4 to the Bill includes the relevant
amendments to the ITAA 1997 to continue the operation of the dividend
imputation system over the next decade as the company tax rate reductions included
in Schedule 1 to the Bill come into effect.
The arrangements for the dividend imputation system are
included in Part 3–6 of the ITAA 1997. In broad terms, the imputation
system allows Australian corporate tax entities to distribute profits to
members after corporate tax has been paid in the form of a ‘franked’ dividend.
These franked dividends can then be used by the recipients to offset their tax
liability, thereby avoiding double taxation, where tax is paid on profit earned
by a corporate tax entity, and again when a recipient receives a distribution.[107]
Under existing arrangements, the amount of franking credits
that can be attached to a distribution is limited by a formula linked to the
‘standard corporate tax rate’—currently set at 30 per cent.[108]
Under this Bill the corporate tax rate reduces to 27.5 per
cent for an entity as they come within the increased turnover thresholds. As
the Bill will result in some entities having a corporate tax rate of 27.5 per
cent and others having a corporate tax rate of 30 per cent, the operation of
the imputation system has to change.
Item 28 of Schedule 4 to the Bill inserts a new
definition of corporate tax rate for imputation purposes into the
definitions provision in subsection 995–1(1) of the ITAA 1997. The
definition proposes that the corporate tax rate for imputation purposes
means the corporate tax rate that applies to the entity in relation to its
turnover threshold for the previous year.[109]
The use of the previous year’s turnover to determine the franking rate means
that companies making a distribution could face an imputation rate that is the
same, or lower than, the corporate tax rate for the relevant year, depending on
how their turnover changes from year to year as the turnover threshold is
lifted.
To illustrate these different outcomes, we can use the
example 1.1 at page 25 of the Explanatory Memorandum as a guide and make
different assumptions about the turnover for 2017–18 to show that the company
tax rate for imputation purposes can be the same or lower than the applicable
company tax in 2017–18 (Table 3).
Table 4: Examples
of the company tax rate for imputation purposes under different turnover
assumptions for 2017–18
| Example 1—company tax rate and imputation rate the same |
| Year |
Hypothetical turnover |
Threshold for lower company tax rate in this year |
Company tax rate in this year |
Company tax rate for imputation purposes in this year |
| 2015–16 |
$18 million |
$2 million |
30% |
30% |
| 2016–17 |
$20 million |
$10 million |
30% |
30% |
| 2017–18 |
$24 million |
$25 million |
27.5% |
27.5% |
| Example 2—company tax rate and imputation rate different
with higher turnover in later year |
| 2015–16 |
$18 million |
$2 million |
30% |
30% |
| 2016–17 |
$20 million |
$10 million |
30% |
30% |
| 2017–18 |
$26 million |
$25 million |
30% |
27.5% |
Source: Parliamentary Library estimates based on example 1.1 of
the Explanatory Memorandum.
As noted in the Explanatory Memorandum, this change ‘does
not alter basic operation of the imputation system. Distributions to members
who are domestic shareholders will continue to be ultimately taxed at the
member’s marginal rate’.[110]
Some tax professionals have been reported as considering that
companies would be under pressure to ‘use it or lose it’, potentially giving
companies an incentive to fully distribute dividends with the higher franking
credit, rather than retaining the profits for re-investment.[111]
In commenting on this issue, the Australian Shareholders Association (ASA) was
reported as stating:
We appreciate that this appears to be a complex issue for
companies, but the ASA has often been critical of companies who have retained
franking credits and not extended distribution to their shareholders in a
timely way.
... We hope that the tax reduction changes that have been
signalled in the interests of long-term growth will prompt companies to give
immediate attention to retained franking credits and the benefits to which
shareholders are entitled.[112]
In the 2023–24 income year, a corporate tax rate of 27.5
per cent will apply to all corporate entities. The amendments to the ITAA
1997 in Part 2 of Schedule 4 to the Bill reflect the single tax rate for
all companies.
Schedule 5—other
consequential amendments
Schedule 5 makes various consequential amendments to
the ITAA 1997 relating to dividend imputation as the tax rate changes
from 1 July 2016 and then over the period 1 July 2023 to 1 July 2026.
The Schedule also makes amendments to the ITAA 1936 where the level of
the general company tax rate is referenced (item 9).
Concluding comments
The level of company tax in Australia is at the higher end
compared to other countries. The proposed company tax cuts included in the Bill
are implemented in a way that any benefits on investment and profitability will
be firstly experienced by smaller companies. While the economic literature
generally supports the view that company tax cuts can lead to higher levels of
investment, the magnitude of the effect is open to some debate.
[1]. Australian
Government, Budget
measures: budget paper no. 2, 2016–17, May 2016, pp. 36–43.
[2]. S
Morrison, ‘Second
reading speech: Appropriation Bill (No. 1) 2016–2017’, House of
Representatives, Debates, 3 May 2016, p. 4255.
[3]. S
Morrison, ‘Second
reading speech: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016’,
House of Representatives, Debates, 1 September 2016,
p. 250.
[4]. These
changes were implemented from 1 July 2015, and are discussed later in this
Digest.
[5]. Australian
Taxation Office (ATO), ‘Small
business entity concessions’, ATO website, last modified 4 October 2016.
[6]. ATO,
‘Imputation’, ATO
website, last modified 11 November 2015.
[7]. S
Reinhardt and L Steel, ‘A
brief history of Australia’s tax system’, Economic Round-up, Winter
2006, 4 September 2006, p. 17.
[8]. Ibid.
[9]. Taxation Review Committee, Full
report: Taxation Review Committee, (the Asprey Review),
Australian Government Publishing Service, Canberra, 1975, pp. 241–242.
[10]. Ibid.,
paragraph 16.100, p. 242.
[11]. Review
of Business Taxation, A
tax system redesigned: more certain, equitable and durable: report, (the Ralph
Review), The Review, Canberra, July 1999; pp. 575–589.
[12]. Ibid.
[13]. K Henry, Australia’s future tax system: report to the
Treasurer, (Henry Tax Review), vol. 1 of 2, ‘Part
two detailed analysis’, The Treasury, Canberra, December 2009, pp. 167,
174.
[14]. K Rudd (Prime Minister), Stronger,
fairer, simpler: a tax plan for our future, media release, 2 May 2010.
[15]. Ibid.
[16]. J Gillard (Prime Minister), W Swan (Treasurer) and M Ferguson (Minister
for Resources and Energy), Breakthrough
agreement with industry on improvements to resources taxation, joint media release, 2 July 2010.
[17]. Minerals Resource
Rent Tax Act 2012; Australian Government, Budget
measures: budget paper no. 2: 2012–13, May 2012, p. 22.
[18]. P
Coorey, ‘Eyes
on Wilkie over company tax cuts’, The Sydney Morning Herald,
2 May 2012, p. 6; M Grattan, ‘No
hope of tax cut for big business: Milne: Greens leader attacks supermarkets’,
The Age, 16 April 2012, p. 3.
[19]. Prime
Minister Rudd did however announce a proposal for the creation of a ‘Northern
Special Economic Zone’ for which tax incentives would apply ‘with the objective
of reducing the company tax rate for Northern Territory-based companies in five
years’ (K Rudd (Prime Minister of Australia), Growing
the north: a plan for Northern Australia, media release, 15 August
2013).
[20]. Australian
Labor Party (ALP), Boosting
investment by small business, ALP policy document, Election 2013,
p. 2.
[21]. Liberal
Party of Australia and the Nationals, The
Coalition’s policy to lower company tax, Coalition policy document,
Election 2013, p. 2.
[22]. Liberal
Party of Australia and the Nationals, The
Coalition’s policy for paid parental leave, Coalition policy document,
Election 2013, pp. 6–7.
[23]. Australian
Greens, Standing
up for small business: lower taxes, Australian Greens policy document,
Election 2013, p. 1.
[24]. Ibid.
[25]. Australian
Greens, Greens
focus on small business, media release, 8 August 2013.
[26]. Board
of Taxation, Review
of tax impediments facing small business: a report to the Government,
The Treasury, Canberra, August 2014, pp. 40–43.
[27]. Ibid.,
p. 42.
[28]. The Treasury, Rethink:
tax discussion paper: better tax system, better Australia,
The Treasury, Canberra, March 2015, pp. 105–120.
[29]. Ibid.,
p. 119.
[30]. Ibid.,
p. 26.
[31]. Ibid.,
p. 78.
[32]. Australian
Government, Budget
measures: budget paper no. 2, 2015–16, May 2015, pp. 19–20.
[33]. Tax Laws Amendment
(Small Business Measures No. 1) Act 2015.
[34]. B
Shorten, ‘Second
reading speech: Appropriation Bill 2015–2016’, House of Representatives, Debates,
14 May 2015, p. 4185.
[35]. Tax Laws Amendment
(Small Business Measures No. 3) Act 2015.
[36]. Senate
Standing Committee for the Selection of Bills, Report,
6, 2016, The Senate, Canberra, 15 September 2016, p. 1.
[37]. Senate
Economics Legislation Committee, Treasury
Laws Amendment (Enterprise Tax Plan) Bill 2016 [Provisions], The
Senate, Canberra, 10 October 2016, p. 32.
[38]. Ibid.,
p. 33.
[39]. Senate
Standing Committee for the Scrutiny of Bills, Alert
digest, 6, 2016, The Senate, Canberra, 15 September 2016,
p. 41.
[40]. B
Shorten, ‘Second
reading speech: Appropriation Bill (No. 1) 2016-2017’, House of
Representatives, Debates, 5 May 2016, p. 4620.
[41]. Ibid.
[42]. Australian
Greens, Budget
principles: our approach to the 2016 budget & election, Greens
policy document, Election 2016, p. 1.
[43]. Nick
Xenophon Team, Policy
principles, Nick Xenophon Team policy document, Election 2016,
p. 2.
[44]. Business
Council of Australia (BCA), Realising
our full potential: tax directions for a transitioning economy, BCA,
Melbourne, March 2016, p. 25.
[45]. Ibid.,
pp. 44–45.
[46]. BCA,
BCA
Statement on the 2016–17 federal budget, media release, 3 May
2016.
[47]. Ibid.
[48]. Australian
Chamber of Commerce and Industry (ACCI), 2016–17
Australian Chamber pre-budget submission, ACCI, Canberra, February
2016, p. 9.
[49]. ACCI,
Enterprise
budget fuels the engine room of the economy, media release, 3 May
2016.
[50]. P
Sullivan (Australian Industry Group), A
good budget for business, media release, 3 May 2016.
[51]. P
Sullivan (Australian Industry Group), Tax
changes will help grow Australian scale in manufacturing, media
release, 3 May 2016.
[52]. Council
of Small Business Australia, Small
business budget II – more than a sequel, media release, 3 May
2016.
[53]. The
Tax Institute, A
Budget for now and the future, media release, 3 May 2016.
[54]. The
Tax Institute, 2016–17
federal budget submission, The Tax Institute, Sydney, February 2016,
p. 8.
[55]. Ibid.
[56]. Australian
Council of Trade Unions, Fudge
it budget: Turnbull fails working Australians and gives golden handshake to big
corporations, media release, 3 May 2016.
[57]. Australian
Council of Trade Unions (ACTU), Tax
reform for a fairer society and stronger economy, ACTU, Melbourne,
8 March 2016, pp. 19–20.
[58]. Ibid.,
pp. 21–22.
[59]. Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016,
p. 54, paragraph 4.40.
[60]. J
Fraser (Secretary of the Treasury), Evidence
to Senate Economics Legislation Committee, Budget Estimates 2016–17,
6 May 2016, p. 11.
[61]. Parliamentary
Budget Office (PBO), Post-election
report of election commitments: 2016 general election, PBO, Canberra,
5 August 2016, p. 21.
[62]. PBO,
Post-election
report of election commitments: 2016 general election, ‘Appendix F:
costing documentation for Labor’s election commitments’, PBO, Canberra,
5 August 2016, pp. 209–211.
[63]. Human Rights
(Parliamentary Scrutiny) Act 2011.
[64]. The
Statement of Compatibility with Human Rights can be found at pages 32–33, 39–40
and 45–46 of the Explanatory
Memorandum to the Bill.
[65]. Parliamentary
Joint Committee on Human Rights, Report,
7, 2016, The Senate, Canberra, 11 October 2016, p. 100.
[66]. A
business is a small business entity as defined in section 328-110
of the ITAA 1997 if the business is carried on in the current year; and
either the business was carried on in the previous income year and the
aggregated turnover for the previous year was less than $2 million or the aggregated
turnover for the current year is likely to be less than $2 million.
[67]. A
PDF is a fund used to raise capital and make equity investments in Australian
small and medium-sized enterprises. The PDF programme was closed to new
registrations in June 2007. However, Funds registered under the program continue
to operate. An RSA is a low-risk, low return superannuation product, generally
offered by the major banks.
[68]. Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016,
p. 16, op. cit., paragraph 1.32.
[69]. Item
37 of Part 9 of Schedule 1, item 45 of Part 10 of Schedule 1 and item
53 of Part 11 of Schedule 1 to the Bill.
[70]. Item
38 of Part 9 of Schedule 1, item 46 inserted by Part 10 of Schedule
1 and item 54 inserted by Part 11 of Schedule 1.
[71]. Item
40 inserted by Part 9 of Schedule 1, item 48 inserted by Part 10 of
Schedule 1 and item 56 inserted by Part 11 of Schedule 1.
[72]. S
Morrison, ‘Second
reading speech: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016’, Debates,
House of Representatives, 1 September 2016, p. 11; Australian
Government, Budget measures: budget paper no. 2, 2016–17, op. cit.,
p. 250.
[73]. W
Swan, ‘Ministerial
statements: Economy’, House of Representatives, Debates, 24 May
2010, p. 3707.
[74]. K
Henry, Australia’s future tax system: Report to the Treasurer, (the
Henry Tax Review), ‘Part
one: overview’, The Treasury Canberra, December 2009, pp. 39–40.
[75]. Organisation
for Economic Co-operation and Development (OECD), Tax
policy reform and economic growth, OECD Publishing, Paris,
3 November 2010.
[76]. Ibid.,
p. 22.
[77]. D
Richardson, Company
tax cuts: what the evidence shows, Australia Institute, Canberra, March
2016.
[78]. Ibid.,
pp. 15–16.
[79]. The
Treasury, ‘Economy-wide
modelling for the 2016-17 Budget’, The Treasury website, 3 May 2016.
[80]. C
Murphy, Company
tax scenario report prepared for the Department of the Treasury,
Independent Economics, Canberra, 28 April 2016; KPMG, Modelling
the macroeconomic: impact of lowering the company tax rate in Australia,
KPMG, [Canberra], 2 May 2016.
[81]. R
Denniss, How
will the corporate tax cut be funded?, Briefing paper, The Australia
Institute, Canberra, May 2016, p. 5.
[82]. J
Dixon and J Nassios, Modelling
the impacts of a cut to company tax rates in Australia, Working paper,
G-260, Centre of Policy Studies, Melbourne, April 2016, p. 1.
[83]. S
Ouliaris, ‘Economic
models: simulations of reality’, International Monetary Fund (IMF), IMF
website, updated 28 March 2012.
[84]. Explanatory
Memorandum, op. cit., p. 47.
[85]. S
Morrison, ‘Second
reading speech: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016’,
House of Representatives, Debates, 1 September 2016, p. 250.
[86]. P
Krugman, cited in M Knoll, ‘The
connection between competitiveness and international taxation’, Tax Law
Review, 65(3), 1 April 2012, pp. 352–353.
[87]. W
Schomberg and C Humphries, ‘UK
plans lower corporation tax to cushion hit from Brexit’, Reuters,
4 July 2016.
[88]. PriceWaterhouseCoopers
(PwC), Worldwide
tax summaries: corporate taxes 2015/16, PwC, [London], 1 June 2015,
p. 1894.
[89]. K
Pomerlau and A Cole,
International Tax Competitiveness Index 2015, Tax Foundation,
Washington DC, 28 September 2015, p. 2.
[90]. M
Stewart, A Moore, P Whiteford and R Quentin Grafton, A
stocktake of the tax system and directions for reform: five years after the
Henry Review, Tax and Transfer Policy Institute, Australian National
University, February 2015, p. 62.
[91]. M
Knoll, ‘The
Corporate Income Tax and Competitiveness of U.S. Industries’, Tax Law
Review, 63(4), 1 July 2010, pp. 771–796.
[92]. S
Djankov, T Ganser, C McLiesh; R Ramalho and A Shleifer, ‘The
effect of corporate taxes on investment and entrepreneurship’, American
Economic Journal: Macroeconomics, 2(3), July 2010, pp. 31–32.
[93]. Ibid.,
p. 59.
[94]. Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, p. 35.
[95]. The
maximum amount of $1,000 is specified in subsection 328–360(2) of the Act.
[96]. Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, op. cit.,
p. 41.
[97]. Sections
328–110 to 328–130 define several terms connected with this definition
including the meaning of ‘aggregated turnover’, ‘annual turnover’, ‘connected
with an entity’ and ‘affiliate’.
[98]. Department
of Industry, Innovation, Science, Research and Tertiary Education (DIISRTE), Australian
small business: key statistics and analysis, DIISRTE, Canberra, December
2012, p. vii.
[99]. Australian
Bureau of Statistics (ABS), Counts
of Australian businesses, including entries and exits, June 2010 to June
2014, cat. no. 8165.0, ABS, Canberra, 2 March 2015, p. 21.
[100]. Ibid.
[101]. Privacy Act 1988,
section 6D.
[102]. Australian
Securities and Investments Commission Act 2001, subsection 12BC(2).
[103]. Fair Work Act 2009,
subsection 23(1).
[104]. Australian
Taxation Office (ATO), ‘Small
business superannuation clearing house’, ATO website, last modified 22
September 2016.
[105]. B
Pulle, Tax
Laws Amendment (Small Business) Bill 2007, Bills digest, 156, 2006–07,
Parliamentary Library, Canberra, 23 May 2016, p. 3.
[106]. P
Costello (Treasurer) and F Bailey (Minister for Small Business and Tourism), Making
tax compliance easier for small business: the new small business framework,
joint media release, 13 November 2006.
[107]. ATO,
‘Imputation’, ATO
website, last modified 11 November 2015.
[108]. ITAA
1997, section 202–60 and subsection 995–1(1).
[109]. If
a corporate tax entity did not exist in the previous income year, the entity’s
corporate tax rate for imputation purposes will be set the rate specified in
paragraph 28(2)(a) of the Income Tax Rates Act — that is, 27.5 per cent.
[110]. Explanatory
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016, op. cit.,
p. 25.
[111]. J
Mather, ‘Company
tax cut threat to franking credits’, Australian Financial Review,
14 September 2016, p. 3.
[112]. Ibid.
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