Labor and Coalition look to cut tax rate for small and medium businesses

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Labor and Coalition look to cut tax rate for small and medium businesses

Both parties plan to reduce the rate to 25 percent in 2021-22.

Small and medium-sized businesses that turnover less than $50 million could see their tax rate fall to 25 percent in the 2021-22 financial year, under plans floated by the Government and supported by the opposition Labor party.

That’s much faster than the existing schedule to reduce the current 27.5 percent rate to 25 percent in 2026-27.

The Government plans to introduce new legislation next week aimed at bringing forward the cuts for small and medium-sized businesses. Labor has also announced it will cut the rate to 25 percent in 2021-22, if it is elected.

The table below shows the planned timetable and the existing one.

Small and medium business tax rate

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

Existing tax rate reduction plan

27.5%

27.5%

27.5%

27.5%

27.5%

27.5%

27%

26%

25%

Proposed tax rate reduction plan

27.5%

27.5%

26%

25%

25%

25%

25%

25%

25%

Sole traders could see 16% tax discount sooner

Tax discounts for unincorporated small businesses will also be fast-tracked if Parliament passes legislation the Government introduces next week.

Currently, unincorporated small businesses could be eligible for an eight percent tax discount, which will increase to 16 percent in 2026-27. The new legislation aims to introduce the 16 percent discount in 2021-22.

The Australian Taxation Office (ATO) calls this discount the “small business income tax offset” or “unincorporated small business tax discount”. It’s available to sole traders or people with a share of small business income from a partnership or trust, if the business has an aggregated annual turnover less than $5 million.

As the ATO web site explains, the discount applies to the income tax payable on the business income and is capped at $1,000 a year for each person.

The table below shows the existing schedule for increasing unincorporated tax discounts, and the schedule the government aims to introduce.

Tax discount for unincorporated small businesses

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

Existing discount

8%

8%

8%

8%

8%

8%

10%

13%

16%

Discount under  proposed legislation

8%

8%

13%

16%

16%

16%

16%

16%

16%

Labor’s announcement didn’t mention a discount for unincorporated small businesses, though it stated that “Labor will deliver the same tax relief for small business as the Coalition.”

“With a Shorten Labor Government – 99 per cent of businesses will receive a tax cut, no business will have their tax rate increased,” Labor promised.

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