Lower Company Tax Rates

Brexit and the Trump US Election result seems to have renewed the conversation about Australia’s corporate tax rate. Federal Treasurer, Scott Morrison, in his recent speech to business leaders in London spoke of the need for Australia to lower its corporate tax rate to be closer aligned with Britain (20% moving to 17%), Canada (15%) and Trump’s targeted reductions in the US. 

Australia’s corporate tax is currently 30%. For small businesses with annual turnover of less than $10million the rate is 27.5%.

The turnover threshold to become eligible for the lower (27.5%) tax is planned to progressively increase, so that by FY2024 all companies will pay 27.5%.

The question remains; “is this planned reduction too little AND too late, to allow Australia to compete for local and international capital?”

Whilst the Federal Budget would need adjustment to accommodate a cut to the corporate tax rate, I struggle to find reasons why people would argue against a significantly lower company tax rate.

Lower company tax would logically allow greater after tax dollars to fund investment and debt reduction and most importantly increase a business owner’s likelihood to invest in people and technology.

In the public company domain, dividend yields would likely increase, making investment in Australia more likely.

The argument that small business owners would get richer at the expense of the salary and wage earner does not hold water. The only way private company owners can extract the “after company tax” profits is via dividends. These dividends would then be subject to the marginal tax rates that all Australians are subject to (ranging between 17% - 45% plus the Medicare and other temporary levies).

Lower taxes = greater AFTER TAX profits, lower debt burdens, greater investment AND more jobs! The sooner the better I say!

Article by Chris Sneddon, Director

 

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