More than 3.6 million small and medium-sized businesses will have their tax bills slashed, with the company tax rate for firms turning over up to $50m plummeting to its lowest rate in 50 years.
Treasury figures obtained by The Australian reveal the economy-wide impact of the improved company tax regime, which comes into effect on Thursday.
In NSW and Victoria alone, 2.1 million small and medium businesses – including 650,000 companies and 840,000 sole traders – employing more than 4.5 million Australians will be eligible for the tax cuts.
Across the nation, 996,000 companies with turnovers of up to $5m employing 3.2 million Australians – including child care centres and small business consultants – will gain access to the tax cuts. An additional 38,000 companies with turnovers between $5m and $50m will also be eligible.
Josh Frydenberg said the new tax rate, falling from 30 per cent to 25 per cent in recent years, backed the government’s lower taxes plan to “secure Australia’s future and create more jobs”.
“While other advanced economies like the UK and US have announced tax increases, Australia’s strong economic management has meant that we are able to continue with planned tax cuts for businesses and individuals to deliver a stronger economy and more jobs,” The Treasurer said.
“Unlike our political opponents, we recognise you can’t tax your way to prosperity,” he added.
Treasury predicts the company tax cuts will provide small and medium-sized businesses with tax relief of more than $2.5bn in 2021-22, $2.4bn in 2022-23 and $3.5bn in 2023-24.
State breakdowns show more than a million businesses in NSW and Victoria each will benefit from the tax cuts, with the eligible businesses employing more than 2.5 million and two million Australians respectively.
More than 700,000 Queensland businesses will be eligible for the tax cuts, covering 1.5 million employees, and nearly 370,000 businesses in Western Australia – covering more than 800,000 Australians – will benefit.
The Morrison government is also reducing the tax paid by sole traders by increasing the tax offset rate for small businesses with a turnover of less than $5m to 16 per cent in 2021-22.
The tax cuts are among a range of Morrison government concessions for small businesses which will come into effect on July 1 and are aimed at firing up the post-coronavirus recovery.
The May budget unveiled $105m worth of tax relief for small businesses by lifting the annual turnover threshold from $10m to $50m. From Thursday, eligible businesses will be able to deduct start-up expenses and certain prepaid expenditure. They will also be able to access simplified trading stock rules, and get tax concessions on excise and customs duties.
Businesses – except those companies with significant international tax dealings – will also be allowed to amend tax returns for up to two years. Small and family enterprises are exempt from the 47 per cent FBT on parking and electronic devices for employees.