The Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018 was introduced into and passed by the House of Representatives on 16 October 2018 and passed by the Senate on 18 October 2018. The Bill implements the proposal to accelerate reduction of the tax rate for base rate entities (ie corporate tax entities that derive no more than 80% of their income in passive forms and have an aggregated turnover of less than $50 million). 

Corporate tax rate

Under the measures, the corporate tax rate for base rate entities will reduce from 27.5% to 26% in 2020–2021, before being cut to 25% for 2021–2022 and later income years. This means eligible taxpayers will have a tax rate of 25% in 2021–2022, rather than from 2026–2027 as previously legislated. This is summarised in the following table.

Year  Revised rate % Previously legislated %
2018-2019 27.5 27.5
2019-2020 27.5 27.5
2020-2021 26 27.5
2021-2022 25 27.5
2022-2023 25 27.5
2023-2024 25 27.5
2024-2025 25 27
2025-2026 25 26
2026-2027 25 25

 

Note that the tax rate for corporate tax entities which do not qualify as base rate entities remains unchanged at 30%.

Unincorporated businesses' tax offset

In addition, the Bill increases the small business income tax offset rate to 13% of an eligible individual's basic income tax liability that relates to their total net small business income (ie unincorporated businesses) for 2020–2021. This offset rate will then increase to 16% for 2021–2022 and later income years. This is summarised in the following table.

 Year Revised rate % Previously legislated %
 2018-2019 8 8
2019-2020 8 8
2020-2021 13 8
2021-2022 16 8
2022-2023 16 8
2023-2024 16 8
2024-2025 16 10
2025-2026 16 13
2026-2027 on 16 16

 

Note that the small business income tax offset continues to be capped at $1,000 per individual per year.

The changes will commence in 2020–2021. The measure was previously announced by the Government on 11 October 2018. The speedy passage demonstrates that tax legislation can in fact pass through Parliament promptly, if it is deemed politically expedient.