After an exhausting Senate debate, the Government’s deal with the Nick Xenophon team in the Senate will see phased company tax cuts delivered to small to medium companies with turnovers up to $50 million.
That part of the Government’s original company tax reduction roadmap which ultimately promised a 25% company tax rate for large companies by the 2026-27 income year and later years has not been agreed to.
Michael Croker, the Head of Tax at Chartered Accountants Australia and New Zealand, said political support for the government’s entire 10 year roadmap was always going to be difficult in an environment where the debate was all about the rate and not accompanying trade-offs in the tax system.
However, Chartered Accountants ANZ has reiterated its long-standing support for lowering the company tax rate for all companies.
“Opponents of the target 25% rate have used a range of arguments. Some of the debate – such as ignoring the fact that some companies currently pay little or no tax because of carry forward tax losses – has been misleading. But there have been legitimate concerns expressed about the tax windfall for existing inbound investors and whether the expected investment boost translates into more jobs. But the bottom line is this: Australia’s comparatively high 30% large company tax rate means our economy will continue to lose out because some investment opportunities will not be considered viable.”
At a practical level, Mr Croker also noted the many aspects of an accountant’s work impacted by the Senate deal.
“At least CAs can now start advising their clients with more certainty about the headline company tax rate”.
“Decisions about whether to incorporate, the tax-adjusted yield from proposed investments, budget forecasts, the valuation of certain assets and liabilities, the impact on franked dividends paid to shareholders and year-end tax planning – these are just some of the client conversations which will now occur.”
But he also sounded a warning about the complexity being built-into Australia’s tax system.
“An on-going two tier company tax rate system will raise new problems for the ATO and tax advisers if overseas experience is any guide.”