Bills Digest no. 22, 2017–18
PDF version [700KB]
1 September 2017
Table 1: abbreviations and acronyms
The Bills Digest at a glance
Purpose of the Bill
Policy rationale for reducing the
company tax rate
Purpose and structure of the Bill
Table 3: corporate tax rate from
2015–16 after Senate amendments to the ETP Bill on 9 May 2017
Small business tax offset and CGT
Proposed measures in the Bill
Table 4: proposed measures in the
Bill starting from the 2019–20 income year
History of company tax rate changes
Table 5: company income tax changes,
1915 to 2001
Building on the 2014–15 Budget
changes to tax rates for small business
Policy momentum for a lower company
tax rate or changes to the small business turnover threshold
Senate Standing Committee for the
Selection of Bills
Senate Standing Committee for the
Scrutiny of Bills
Policy position of non-government
Position of major interest groups
Table 6: financial impact of measures
proposed by the Bill, 2016–17 to 2020–21 ($ million)
Statement of Compatibility with Human
Schedule 1–Reducing the corporate tax
Date introduced: 11
House: House of
implemented from 1 July 2019
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
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
All hyperlinks in this Bills Digest are correct as
at September 2017.
Table 1: abbreviations
The Bills Digest
at a glance
Purpose of the Bill
present Bill follows the Treasury
Laws Amendment (Enterprise Tax Plan) Bill 2016 (ETP Bill 2016), which was
passed by Parliament on 9 May 2017,
and received Royal Assent on 19 May 2017.
the passage of this amended ETP Bill, instead of applying to all businesses,
the reduced corporate tax rate of 27.5 per cent would only apply to businesses
with an aggregated turnover of less than $50 million from the 2018–19 income
reduced tax rate of 27.5 per cent would be applied for businesses with an aggregated
turnover of less than $10 million starting from the 2016–17 income year and
businesses with an aggregated revenue less than $25 million starting from
the 2017–18 income year.
present Bill is a residual part of the previous ETP Bill, containing the
provisions that did not pass the Parliament on 9 May 2017, and includes provisions
to incorporate the reduced tax rates progressively within a specific timeframe.
measures contained in the present Bill stipulate that the tax rate of 27.5 per
cent will gradually apply to higher turnover thresholds over successive years,
until it reaches $1 billion revenue threshold in the 2023–24 income year.
uniform company tax rate of 27 per cent is to apply to all businesses from the 2024–25
income year; then lowered to 26 per cent in the 2025–26 income year, and remaining
at 25 per cent from the 2026–27 income year onwards.
Policy rationale for reducing the company tax rate
The Government’s proposal to lower the company tax rate
is based on several policy goals, among them:
encourage growth and innovation (based on the assumption that small business
activity is important in generating economic growth) and
attract investment and grow the economy (based on the assumption that lower
company tax rates will make Australia more competitive with other countries as
a place to invest).
Note: A detailed analysis of the likely impact of the
tax changes is contained in the Library Bills
Digest on the Treasury Laws Amendment (Enterprise Tax Plan) Bill
Purpose and structure of the Bill
Schedule 1 to this Bill proposes to amend the Income Tax Rates
Act 1986 (the Rates Act) to progressively extend the lower 27.5
per cent corporate tax rate to all corporate tax entities by the 2023–24 income
year. From the 2024–25 income year onwards, the tax rate will then be universally
applied on all corporate entities according to the following schedule:
the 2024-25 income year—27 per cent
the 2025-26 income year—26 per cent and
the 2026-27 income year and later income years—25 per cent.
Schedules 2 to 4 make consequential amendments to incorporate
these changes in the income tax law.
The proposed measures in the Bill seek to implement the
2016–17 Budget announcements that all corporate entities would be subject to a uniform
tax rate of 25 per cent on their taxable income from the 2026–27 income year. The
original legislation to implement the announced changes was introduced to the
Parliament on 1 September 2016 as the Treasury
Laws Amendment (Enterprise Tax Plan) Bill 2016 (ETP Bill 2016).
After a series of consultations and compromises between the
government, minor parties and independent senators, the ETP Bill 2016
eventually passed the Senate on 31 March 2017, although it was subject to a
number of modifications. The original Bill sought to reduce the corporate tax
rate for all entities to a uniform 25 per cent from the 2026–27
income year. However, the Bill that passed both Houses only reduced the tax
rate of business entities with an aggregated business turnover of less than $50
million to the 25 per cent rate, implemented in a staggered approach to allow
declining rates starting from the 2016–17 income year.
Table 3 shows the application of a gradual reduction of
the tax rate on the corporate entities as a consequence of the Senate
amendments to the ETP Bill 2016.
Table 3: corporate
tax rate from 2015–16 after Senate amendments to the ETP Bill on 9 May 2017
||Aggregated business turnover
||Company tax rate (%)
||< $2 million
||< $10 million
||< $25 million
||< $50 million
||< $50 million
||< $50 million
||< $50 million
Source: Parliamentary Library, based on data in the Treasury
Laws Amendment (Enterprise Tax Plan) Act 2017.
With the amended measures, the two-tier corporate tax
rates will also be applied to certain types of entities, that deemed non-conventional
corporate entities for the purpose of implementing the tax measures, from the
2017–18 income year:
standard component of taxable income of companies (other than life insurance
companies) that are retirement savings account (RSA) providers
amount that exceeds the pooled development funds (PDFs, see definition in the
component of taxable income of companies that become PDFs during an income year
ordinary class of taxable income of life insurance companies
taxable income of public trading trusts
income streams of not-for-profit companies
income streams of recognised medium credit unions and
non-arm’s length income of managed investment trusts.
Small business tax offset and CGT concessions
Consistent with the changes in the Treasury Laws
Amendment (Enterprise Tax Plan) Act 2017 (ETP Act), the increase in
the aggregated turnover threshold to $10 million will expand access to most small
business entity (SBE) concessions, for example:
$20,000 immediate write-off for depreciating assets
deductions for certain prepaid expenditure and
simplified depreciation rules to many more taxpayers.
However, this new small business threshold of $10 million
will not be applied in case of the Small Business Income Tax Offset (SBITO), also
known as the unincorporated small business tax discount, and the Small Business
CGT concessions (CGT SBCs).
Small Business tax offset (SBITO)
Non-corporate small business entities were allowed a tax
discount to complement the reduction in the company tax rate from 30 per cent
to 28.5 per cent under Subdivision 328-F of the Income Tax
Assessment Act 1997 (ITAA 1997) from income years
commencing on or after 1 July 2015 (i.e. the 2015–16 and later income years for
an entity that balances at 30 June).
The concession is available to individuals (sole traders)
who are small business entities, individuals who are partners in a partnership
that is a small business entity, and individuals who are beneficiaries of a
trust that is a small business entity.
The offset generally reduces the tax payment by up to
$1,000 each year.
The offset, which is worked out on the proportion of tax
payable on a business income, is:
per cent for the 2016–17 income year onwards
per cent for the 2015–16 income year.
The offset, which is available under Subdivision 328-F of the
ITAA 1997, will increase to 10 per cent in 2024–25, to 13 per cent in
2025–26, and to 16 per cent in 2026–27.
It is, however, worth considering that the business
turnover threshold change will not apply with respect to the SBITO.
In order to avail of the tax concessions in the form of
SBITO the small business must have an aggregated turnover less than:
$5 million for the 2016–17 income
$2 million for the 2015–16 income
Importantly, for the purposes of the CGT SBCs, the aggregated
turnover threshold will remain at $2 million, although taxpayers may still
seek to satisfy the $6 million maximum net assets test as an alternative method
of obtaining access to these concessions.
With the passage of the ETP Bill on 9 May 2017, changes in
the business turnover threshold will also apply to align the maximum
franking credits (that can be attached to frankable distributions) to
the rate of tax paid by a corporate entity:
For the 2016 (2015–16) income year, SBE companies paid tax on
their taxable income at 28.5%, whilst still being able to pass on franking
credits to their shareholders at a rate of 30%, subject to there being
available franking credits (or risk being exposed to the franking deficit tax).
However, with effect from 1 July 2016 (i.e., the 2017 income
year), the maximum franking credit that can be allocated to a frankable
distribution paid by a company will be based on the tax rate that is applicable
to the company.
This is achieved by limiting a company’s ‘maximum franking
credit’ for a distribution to its ‘corporate tax rate for imputation purposes
for that year’, which is worked out based on what income tax rate would apply
to the company in the current year, assuming its aggregated turnover for the
current income year is equal to its aggregated turnover for the previous income
Proposed measures in the Bill
The Treasurer announced on 27 April 2017 that the
Government would re-submit certain parts of the Government’s ten-year
Enterprise Tax Plan to eventually reduce the company tax rate to 25 per cent
for all companies.
The current Bill classifies a ‘base rate entity’ according
to whether it carries on a business and has an aggregated turnover, as postulated
under section 328-115 of the ITAA 1997,(for an explanation of this term
of less than:
million for the income year 2017–18 or
million for the income year 2018–19.
This ‘base rate entity’ classification will be
progressively applied in subsequent years when aggregated business turnover
million in the income year 2019–20
million in the income year 2020–21
million in the income year 2021–22 and
billion in the income year 2022–23.
The Bill proposes to incorporate the following changes subsequent
to the amended measures passed by the Parliament on 9 May 2017.
As stated above in the classification of ‘base rate entity’,
the corporate tax rate will be as follows:
company tax rate of 27.5 per cent will be progressively applied to businesses
with higher threshold in successive years until it reaches $1 billion
revenue threshold in the 2022–23 income year
the income year 2023–24, the aggregated turnover threshold for this
concessional rate of 27.5 per cent will be removed altogether. Instead, the
rate will be applied uniformly for all businesses
uniform company tax rate of 27 per cent will be applied for all businesses
in the 2024–25 income year, 26 per cent in the 2025–26 income year, and 25
per cent in 2026–27 income year and later years.
The summary of the proposed measures are presented in Table
Table 4: proposed
measures in the Bill starting from the 2019–20 income year
||Aggregated business turnover
||Company tax rate (%)
||Aggregated business turnover
||Company tax rate (%)
||< $100 million
||≥ $100 million
||< $250 million
||≥ $250 million
||< $500 million
||≥ $500 million
||< $1 billion
||≥ $1 billion
|2026–27 and onwards
Source: Parliamentary Library, based on the data in the
History of company tax
rate changes in Australia
The taxation of companies as separate entities in
Australia first commenced in 1922.
The company tax rate has been reduced over time, decreasing from a high of 49
per cent in 1986 to the current general rate of 30 per cent.
A summary by the Treasury noted that company tax rate reductions largely
corresponded with base broadening measures (please see the explanation in the
such as the removal of accelerated depreciation (Table 5).
Table 5: company income
tax changes, 1915 to 2001
||Company tax rate (%)
||Notes on tax base
||A company was taxed on its undistributed profits (allowing
a deduction for income distributed to shareholders).
||Tax applied to all profits (not just undistributed
profits). Rebate provided to all dividends.
||All rebates for distributions of profits to shareholders
||47.5; 45; 42.5
||Lower rate (42.5) applied to initial income (first $10,000
of profits in 1974)
||Private and public company income tax rates aligned.
||Company tax rate aligned with top individual marginal tax
||Foreign tax credit system replaced the general exemption
for foreign earnings. Credit allowed for foreign tax paid on foreign income
up to the amount of Australian tax payable on the foreign income.
||The classical system of company taxation replaced by
||Removal of accelerated depreciation
||Refundable imputation credits introduced.
Source: S Reinhardt and L Steel,
‘A brief history of Australia’s tax system’, op. cit.
In an analysis of income tax
reform and broadening the tax base in Australia, Professor John Freebairn
Broadening the income tax base, or taxable sum, by removing
special exemptions and deductions has been a characteristic of many tax reform
programs in Australia and overseas. Usually the stick of a larger tax base is
matched by the carrot of lower tax rates that can be funded in a roughly
revenue neutral package. In addition, such a tax reform package contributes to
greater tax neutrality and then increased economy-wide productivity, it
simplifies the tax system and lowers costs of tax administration and compliance,
and arguably the reform package contributes to greater horizontal tax equity.
Introduction of the fringe benefits tax (FBT), capital gains tax (GST) and some
other base broadening measures in Australia in 1985 helped fund large tax rate reductions,
including a drop in the top 60% rate to 49%.
Replacing accelerated depreciation with depreciation over the
economic life of plant, equipment and buildings in 2001 funded most of the drop
in the Australian corporate tax rate from 39% to 30%.
Building on the 2014–15 Budget changes to tax rates
for small business
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.
This measure was enacted in the Tax Laws Amendment
(Small Business Measures No. 1) Act 2015. The measure passed the
Parliament with bipartisan support, although the Leader of the Opposition argued
in his 2015–16 Budget reply for a larger reduction:
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.
Part of the rationale for the reduction in the company tax
rate was a recognition that not all small businesses were companies. The 1.5
per cent reduction was designed to be equivalent to the recently enacted ‘tax
discount’ for unincorporated small businesses. This treatment of unincorporated
small businesses was implemented by the Tax Laws Amendment
(Small Business Measures No. 3) Act 2015, which also commenced from 1 July
Policy momentum for a
lower company tax rate or changes to the small business turnover threshold
The proposal for a lower general company tax rate or for
changes to the small business turnover threshold has been included in a number
of reviews over the past few decades.
The review of business taxation (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).
The Ralph Review also included recommendations relating to alternative capital
gains tax arrangements and a simplified depreciation regime.
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.
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.
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.
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
Although the legislation to implement the MRRT passed
through both Houses of the Parliament in early 2012, by the time the 2012–13
Budget was delivered, the proposal for a company tax cut was abandoned.
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.
A 2014 review of tax impediments facing small business by
the Board of Taxation examined whether the $2 million turnover threshold
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
In March 2015, the Government published a discussion paper
that raises some specific tax issues relating to small businesses. These
include compliance costs, choice of business structure and complexity.
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:
The reasoning behind this proposition is that a lower rate
replacing multiple specific concessions could encourage small businesses to
spend their resources by expanding their business, rather than managing their
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.
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
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.
Senate Standing Committee for the Selection of
On 14 June 2017, the Senate Standing Committee for Selection
of Bills considered the Bill and recommended that the bill not be referred to
Senate Standing Committee for the Scrutiny of Bills
On 14 June 2017, the Senate Standing Committee for the
Scrutiny of Bills made no comment on the Bill.
Policy position of non-government
Policy position of non-government parties/independents
and interest groups:
In his budget reply speech after the 2016–17 Budget, 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
less than $2 million.
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 businesses. 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.
2016 election policies on taxation measures
The Coalition: The Coalition announced a plans to cut
the corporate tax rate from 30 per cent to 25 per cent by 2026-27, and the tax
rate for small businesses from 28.5 per cent to 25 Per cent by 2026-27. It
hoped the move would boost GDP, profits, jobs and wages. Workers earning more
than $80,000—the top 25 per cent of income earners—would get a tax cut as the
government would move the threshold for the 37 per cent tax rate up to $87,000.
The cut was supposed to be worth about $315 a year for most higher income
Australian Labor Party: The Australian Labor Party
(ALP) expressed their willingness to support the Coalition’s first tax cut for
small business to 27.5 per cent but not for big businesses. It would not
support the Coalition’s plan to change the definition of small business to
include businesses with a turnover of up to $1 billion. According to the ALP,
these are not small-businesses, Labor says. It also wanted multinational
corporations to ‘pay their fair share of tax’.
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.
The 2013 election policies of the ALP did not include any
proposals to change the general company tax rate.
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.
Australian Greens: The Greens announced the
introduction of a ’buffett rule’ to limit the deductions that the top one per
cent of income earners can claim. The measure would only apply to people who
have a total income of $300,000 or more a year. The party announced that
it would oppose the government’s plans to cut the corporate tax rate. It also
wants to clamp down on multinational tax.
Before the 2013 election, 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.
The policy intent was to ‘to promote the vitality of the sector and to
encourage more Australians to enter into small businesses’.
Part of the policy was also to increase the instant asset write off threshold
from $6,500 to $10,000.
In later period, the Greens announced that they did not
support corporate tax cuts and were ‘refusing to join a tax cuts arms race that
will undermine public education, health and welfare’.
The Nick Xenophon Team’s Policy principles include
a 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’.
Position of major
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.
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).
Following the 2016–17 Budget, the BCA noted that ‘durable
budget repair will not be achieved by increasing the overall tax burden’.
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
In their 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’.
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.
The Australian Industry Group (AIG) welcomed the
proposed changes following the 2016–17 Budget, stating:
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.
In a separate budget-related media release, the AIG
supported the increase in the small business eligibility threshold to
$10 million, although they had advocated for a $20 million threshold
prior to the Budget.
The Council of Small Business Australia (COSBOA) also
supports raising the turnover eligibility threshold to $10 million:
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.
The Tax Institute supported the announcement of a
reduction in the company tax rate to 25 per cent following the 2016–17
Budget as well as the lifting of the small business turnover eligibility
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.
In making this proposal, the Institute stated:
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.
The Australian Council of Trade Unions (ACTU) was
critical of the proposed company tax changes in the
2016–17 Budget, arguing:
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
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.
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.
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 tax reporting of all companies
with annual turnover of more than $100 million.
Tax professionals have stated their frustration about
rushing of the dividend imputation system for the small business sector through
the ETP Bill:
It is unfortunate that the Government has not taken the
sensible approach of delaying the start of this amendment, given three quarters
of the 2017 income year had already lapsed and corporate entities may have
already paid dividends to their shareholders.
The Treasury notes that the proposed measures in the Bill
will result in $600 million less revenue over the period from 2016–17 to
2020–21 (Table 6).
Table 6: financial
impact of measures proposed by the Bill, 2016–17 to 2020–21 ($ million)
Memorandum, op. cit., p. 3.
While there is no direct analysis available
on the revenue impact by analysts on the tax cuts of the proposed measures in
the Bill, a Victoria University paper highlighted three concerns associated
with the measures in a broader context:
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
In discussing about the possible impact of the overall
measures in the Bill, Senator Katy Gallagher (Shadow Minister for
Small Business and Financial Services) questioned the veracity of the
claim of the Government:
Treasury’s own modelling exposes the underwhelming case for
the government’s plan. In its analysis of the most recent budget entitled ‘Economywide
modelling for the 2016-17 Budget,’ the Treasury has estimated the impact of the
government’s corporate tax giveaway on Australia’s projected economic growth.
The key take-out from this modelling is that over 20 years the proposed cut in
company tax from 30 per cent to 25 percent for all businesses would increase
GDP by only 1.2 per cent.
I really think that deserves to be repeated: over 20
years—that is, six terms of the federal parliament—Treasury expects this bill
will only boost our GDP by 1.2 per cent. And that is the headline growth rate.
When you drill down into that figure, it reveals just how lacklustre that
result is when you consider what it means for Australian households. As my
colleague Andrew Leigh succinctly put it: ‘Treasury’s most likely scenario is
that a company tax cut delivers an extra month of household income growth—in
Statement of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), 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.
Schedule 1—Reducing the corporate tax rate
Schedule 1 comprises nine parts, with each part
largely arranged in a chronological fashion to implement the relevant changes
for each year over the period 2019 to 2026.
The proposed amendments contained in Schedule 1 of
the Bill will cause the concessional corporate income tax rate of 27.5 per cent
(as approved by the Parliament on 9 May 2017), to be uniformly applied to all business
entities by the 2023–24 income year.
The Bill achieves this by introducing an annual increase
in the aggregated business threshold so that all corporate entities are
incorporated into the definition of a ‘base rate entity’. For the purpose of
corporate income tax provisions, the legislative definition of ‘small business
entity’ has already been changed to ‘base rate entity’ as a result of the
enactment of the provisions contained in the ETP Bill 2016, starting from 1
Items 1 to 4 (Parts 1 to 4) of Schedule 1
amends paragraph 23AA(b) of the Rates Act by replacing the current
values of $50 million, $100 million, $250 million and $500 million
with the annual aggregated turnover rates of $100 million, $250 million, $500
million and $1 billion respectively in successive years, starting from 1
Part 5, which is to commence from 1 July 2023,
includes 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 involves repealing
the definition ‘base rate entity’ in the Rates Act. Items 5 and 12
(Part 5) makes consequential changes by removing the definition of ‘base
rate entity’ in subsection 3(1) and repealing section 23AA of the
Parts 6 to 8, contain provisions that apply from 1
July 2024, including amendments that reduce the single company tax rate of 27.5
per cent to 27 per cent for all entities for the financial year 2024–25; then
to 26 per cent in 2025–26 and to 25 per cent from 2026–27 onwards.
Schedules 2 to 4 of the Bill contain consequential
amendments required to give effect to the changes contained in Schedule 1.
In essence, consequential amendments will be made to existing provisions of the
ITAA 1936 and the ITAA 1997:
relating to the operation of the imputation system
relating to the tax offset available to life insurance policyholders
relating to the operation of the carry forward tax offset rules
which illustrate the operation of various provisions in the income tax law and
definition of ‘standard corporate tax rate’ for the purposes of the operation
of the diverted profits tax.
Members, Senators and Parliamentary staff can obtain
further information from the Parliamentary Library on (02) 6277 2500.
Morrison (Treasurer), ‘Second
reading speech: Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017’,
House of Representatives, Debates, 11 May 2017, p. 4315.
Laws Amendment (Enterprise Tax Plan) Bill 2016, Bills digest, 24,
2016–17, Parliamentary Library, Canberra, 2016, pp. 20–25.
development funds (PDFs) are venture capital funds that raise capital and make
equity investments in small and medium-sized Australian companies (total assets
not greater than $50 million). PDFs are taxed on their taxable income,
calculated in the same way as for companies generally, but at a concessional
rate (source: R Deutsch, M Friezer, I Fullerton, P Hanley and T Snape, ‘PDFs:
introduction’, Australian Tax Handbook 2017, Thomson Reuters, Sydney,
2017, [11 500]).
Memorandum, Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017,
et al, ‘PDFs: introduction’, Australian Tax Handbook 2017, op. cit., [25
the amendments to subsection 328-360(1) of the ITAA 1997 made by item 1
to 4 of Schedule 2 to the Treasury Laws
Amendment (Enterprise Tax Plan) Act 2017. At the time of writing this
Digest the amendments had yet to be incorporated in the ITAA 1997 on the
Federal Register of Legislation. See also: Australian Taxation Office (ATO), ‘Small
business income tax offset’, ATO website, 16 August 2017.
Tax and Accountants Association (NTAA), ‘Company
tax cuts pass the Senate with amendments’, Client advisory, NTAA website, May 2017.
Morrison (Treasurer), Turnbull
government committed to driving jobs and higher wages for Australians through
business tax relief, media release, 27 April 2017.
turnover is generally the annual turnover of a small business (main business)
plus the annual turnover of any business ‘connected’ and ‘affiliated ‘with the
main business. Annual turnover includes all ordinary income the entity earned
in the ordinary course of business for the income year. Annual turnover means
gross income, not net profit. If the entity operates multiple business
activities, either as a sole trader or within the same business structure, it
must include the income from all the activities when working out its annual
turnover. For example, a sole trader operating a part-time consultancy and a
retail shop would include the income from both business activities when working
out annual turnover. Usually, these items are included in the ordinary
income—trading stock sales, fees for services provided, Interest from business
bank accounts, and amounts received to replace something that would have had
the character of business income. (Source: ATO, ‘Aggregation’,
Memorandum, op. cit., p. 10.
Reinhardt and L Steel, ‘A
brief history of Australia’s tax system’, Economic Roundup, Winter
2006, 4 September 2006, p. 17.
broadening measure’ is a concept that implies income taxes on ‘broader bases’
with ‘lower rates’. It is not a concept of lower tax rates exclusively.
Taxation measures that are also applicable on greater number of economic
activities are part of the principle. Given the constraint in the Commonwealth
spending cuts because of the commitment of the successive governments, it is
argued that the only practical way to cut tax rates without increasing the
deficit is by broadening the tax base—increasing the amount of economic activity
subject to full taxation. In practice, significant portions of national
economic activity (such as consumption of health and education services) are
not included in the tax base. In addition there are a host of arbitrary
deductions, exclusions, and other preferential tax treatments for certain
segments of society. Broadening the tax base consists of ending these tax
preferences to raise revenue. When enacted correctly, measures to broaden the
tax base can have several positive effects. Broadening the tax base creates a
simpler and more equitable tax code, by ending preferential tax treatment for
certain economic activities. By eliminating distortionary provisions, base
broadening can encourage a more efficient allocation of resources. Most
importantly, broadening the tax base can raise the necessary revenue to cut tax
rates without increasing the deficit. (Adapted from a note by S Greenberg, Options for
broadening the U.S. tax base, Tax Foundation, Washington, D.C., 24 November 2015.)
tax reform: base broadening to fund lower rates’, paper presented to the
Melbourne Institute’s Economic and Social Outlook Conference, Melbourne, 31
March and 1 April 2005.
1: revenue measures’, Budget measures: budget paper no. 2, 2015–16, pp.
Shorten (Leader of the Opposition), ‘Second
reading speech: Appropriation Bill 2015–2016’, House of Representatives, Debates,
14 May 2015, p. 4185.
tax system redesigned: more certain, equitable and durable, (the Ralph
Review), Review of Business Taxation, Canberra, 1999,
. K Henry, Australia’s
future tax system: report to the treasurer, (Henry Tax Review), pt 2,
vol. 1, December 2009, pp. 167 and 174.
. K Rudd (Prime Minister), Stronger,
fairer, simpler: a tax plan for our future, media
release, 2 May 2010.
. 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.
. Minerals Resource
Rent Tax Act 2012; and Australian Government, Budget
measures: budget paper no. 2: 2012–13, p. 22.
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’, The Age, 16 April
2012, p. 3.
Board of Taxation, Review
of tax impediments facing small business: a report to the government, Board
of Taxation, Canberra, August 2014, pp. 40–43.
. Australian Government, Re:think:
tax discussion paper: better tax system, better Australia, Treasury,
Canberra, March 2015, pp. 105–120.
Standing Committee for Selection of Bills, Report,
6, 2017, 15 June 2017.
Standing Committee for the Scrutiny of Bills, Scrutiny
digest, 6, 2017, 14 June 2017.
Shorten (Leader of the Opposition), Second
reading speech: Appropriation Bill (No. 1) 2016–2017, House of
Representatives, Debates, 5 May 2016, p. 4620.
Karp and G Hutchens, ‘The
10 big issues of election 2016: how Coalition, Labor and Greens policies
compare’, The Guardian, (online edition), 11 May 2016.
Budget Office (PBO), Post-election
report of election commitments: 2016 general election, PBO, Canberra, 5
August 2016, p. 21.
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
Labor Party, Boosting
investment by small business, Australian Labor Party policy document,
Election 2013, p. 2.
up for small business: lower taxes: the Greens’ plan to ease the pressure on
small business, Australian Greens policy document, August 2013.
Karp and G Hutchens, op. cit.
focus on small business, media release, 8 August 2013.
principles: our approach to the 2016 budget and election, Australian
Greens policy document, Election 2016, n.d., p. 1.
Xenophon Team, ‘Policy
principles’, Nick Xenophon Team policy document, Election 2016, n.d.,
Council of Australia (BCA), Realising
our full potential: tax directions for a transitioning economy, BCA,
Melbourne, March 2016, p. 25.
Council of Australia (BCA), BCA
statement on the 2016–17 federal budget, media release, 3 May
Chamber of Commerce and Industry, Submission
to Federal Government, 2016–17 Australian Chamber pre-budget submissions,
February 2016, p. 9.
Chamber of Commerce and Industry, Enterprise
budget fuels the engine room of the economy, media release, 3 May
Australian Industry Group, A
good for business budget, media release, 3 May 2016.
Industry Group, Tax
changes will help grow Australian scale in manufacturing, media release,
3 May 2016.
of Small Business Australia, Small
business budget II: more than a sequel, media release, 4 May 2016.
Tax Institute, A
budget for now and the future, media release, 3 May 2016.
Tax Institute, Submission
to Treasury, 2016–17 pre-budget submissions, 8 February 2016, p. 8.
Council of Trade Unions (ACTU), Fudge
it budget: Turnbull fails working Australians and gives golden handshake to big
corporations, media release, 3 May 2016.
reform for a fairer society and stronger economy, ACTU, Melbourne, 8
Australia, op. cit.
Memorandum, op. cit., p. 3.
Dixon and J Nassios, ‘Modelling the Impacts
of a Cut to Company Tax in Australia’, Centre of Policy Studies Working
Paper, No. G-260, April 2016, p. 1, Centre of Policy Studies, Victoria
reading speech: Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016’, Senate,
Debates, 29 March 2017, pp. 2520–2521.
Statement of Compatibility with Human Rights can be found at pages 23–24 of the
Explanatory Memorandum to the Bill.
company tax no 2 bill introduced, 12 May 2017’, Australian Tax Week,
(online version), iss. 19, CCH Australia, Sydney, 12 May 2017.
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