The Australian Taxation Office (ATO) has issued an apology to businesses, after an error saw it calculate pay-as-you go (PAYG) instalments for base rate entities, with an aggregated turnover of less than $50 million, using the previous company tax rate of 27.5 per cent instead of the correct 26 per cent.
The ATO admitted that the reduction in the company tax rate was not applied correctly from 1 July, but assured it has now corrected the mistake and issued affected entities with a new PAYG instalment letter reflecting their updated instalment rate or amount.
“We apologise to you and your clients for any inconvenience caused,” the ATO said in a notice to tax agents.
The Tax Office said it has commenced refunding entities who have lodged their activity statements and paid an amount based on the incorrect instalment calculation.
For entities yet to lodge, the ATO explained that they can choose to lodge based on the current instalment calculation on the activity statement and receive a refund for the excess amount paid due to the error.
Entities are also able to vary their instalment rate or amount.
The ATO assured that “all future activity statements will have the correct rate applied”.
“If you or your clients have varied their instalment rate or amount, the variation will continue until the start of their next income year,” the ATO said.
“You can continue to vary your clients’ activity statements if their rate or amount does not reflect their current trading situation.”
The tax rate was cut from 27.5 per cent to 26 per cent for businesses with a turnover of less than $50 million from 1 July, and is due to drop further to 25 per cent from the 2021–22 income year.
Established while Malcolm Turnbull was still prime minister, the government’s original tax cut plan was supposed to drop the corporate tax rate for SMEs with annual turnovers of up to $50 million from 30 per cent to 25 per cent over a 10-year period, with the first drop to 27.5 per cent coming into effect on 1 July 2018, and reducing gradually to 25 per cent by 2026–27.
However, after the industry had lobbied for the government to bring forward the enterprise tax cut, the Morrison government announced in 2018, as part of the election pitch, that it would introduce legislation to bring the tax rate down to 25 per cent for businesses with an annual turnover below $50 million — five years earlier than the former plan.
The full company tax rate of 30 per cent applies to all companies that are not eligible for the lower company tax rate.
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