The tax breaks are forecast to shrink the government’s revenue by $5.3 billion over the next four years, which it says will be offset by a crackdown on tax avoidance by multinational corporations and changes to superannuation concessions.
SMEs will get $5.3 billion in tax breaks over the next four years as the federal government attempts to kick start the economy’s post-mining boom recovery.
Small businesses will be the first to benefit, while major corporations have been promised their first tax rate cut in two decades – but not until 2023.
But the long waiting period for the tax breaks to be delivered to big businesses has been widely criticised by industry groups.
From July 1, the tax rate for around 870,000 businesses with an annual turnover under $10 million will drop from 30% to 27.5%. That cut will gradually be handed out to larger businesses in the next six years, and the company tax rate then lowered over four years to 25%.
Treasurer Scott Morrison said this will encourage businesses to invest and expand, creating more jobs and lifting economic growth by just over 1% in the long term.
‘Higher investment will lead to permanent increases in wages, support jobs, increase consumption and result in higher living standards,’ he said.
But the timing of the tax cuts has been criticised, with the Retail Council saying many households won’t see the benefit of company tax cuts for many years, as the last businesses to benefit are the country’s biggest employers.
KPMG’s managing partner of tax David Linke also said the cuts take too long to come into effect.
‘We welcome the proposed reduction in the corporate tax rate to 25% but transitioning it over an 11-year period is likely to result in Australia falling further behind the tax rates of other capital-importing countries,’ he said.
The Australian Industry Group also warned Australia could remain well behind its overseas rivals even after such a gradual reduction in tax rates.
But the business group said the immediate benefits for small businesses will deliver an economic boost.
‘These measures…are a timely boost to the economy and will underwrite improved living standards,’ Ai Group chief executive Innes Willox said.
Business tax breaks are being delivered as the government’s revenue from company tax falls in 2015/16, primarily because of the mining sector’s downturn and significantly weaker commodity prices.
The tax breaks are forecast to shrink the government’s revenue by $5.3 billion over the next four years, which it says will be offset by a crackdown on tax avoidance by multinational corporations and changes to superannuation concessions.
Meanwhile, instant tax writeoffs for asset purchases worth up to $20,000 that were introduced in the 2015 budget for small businesses with turnovers of under $2 million will now be available to bigger firms with revenues of up to $10 million.
The federal government is also expanding tax breaks for an estimated 2.3 million unincorporated small businesses, such as sole traders, lifting their tax discount from 5% to 8% on 1 July. That discount is then set to gradually rise to 16% by 2026.
There will also be changes to simplify GST reporting for small business owners from July 2017, allowing them to focus on their operations rather than filling out forms, the government said.
