Currently the tax rate for SMEs with annual turnover below $50 million is set at 27.5 per cent and was not due to be reduced until the 2025 financial year, when progressive cuts over three years will take the tax rate down to 25 per cent.
However, Prime Minister Scott Morrison has unveiled plans to speed up the rollout of these tax cuts by four years.
Under the proposal, the tax rate for SMEs would fall to 26 per cent in 2020–21, and then be cut further the following year (2021–22) to 25 per cent.
That would see the ultimate 25 per cent rate introduced five years earlier than is currently planned.
“We will introduce legislation during the next session of Parliament, fast-tracking our business tax relief for more than three million businesses that employ nearly seven million Australians,” the prime minister said.
“This means businesses with a turnover below $50 million will face a tax rate of just 25 per cent in 2021–22 rather than from 2026–27 as currently legislated. Similar timing changes will apply to the roll out of the 16 per cent tax discount for unincorporated businesses.”
According to Mr Morrison, the tax relief would deliver an extra $7,500 annually on a business making $500,00 profit – money he hopes will be reinvested into businesses to fund growth and jobs creation or to help ease cash flow constraints.
“This change will help to ensure Australian businesses are competitive, to protect our economy and jobs,” he said.
Business groups were unsurprisingly welcoming of the announcement, stating it would help job creation.
“Bringing forward the tax cuts means business will be able to keep more of the money they make and that will put them in a better position to hire people, offer more hours of work, to pay down debt, to invest and pay higher wages,” James Pearson, head of the Australian Chamber of Commerce and Industry, said in response to the news.
“We urge politicians of all sides who say they are supporters of small business to back the tax cuts being brought forward. Parliament has already recognised that the tax cuts are a good idea. It’s time to boost business and give small medium and family businesses a much-needed shot in the arm.”
Similarly the Business Council of Australia welcomed the move, claiming it would particularly enhance growth and job creation in regional areas.
“Our regions are crying out for the well-paid and meaningful jobs that only investment can deliver – fast-tracking tax cuts for small and medium businesses earlier will boost business confidence and help grow the economy,” the council’s Jennifer Westacott said.
“A vibrant and diverse business sector underpins Australia’s wellbeing, breathing life and jobs into towns and cities.”