The reduction in the small business company tax rate was implemented by the Government with the intention to encourage small businesses to reinvest the tax savings in their business, with the goal being to provide employment and investment growth.
The concessions were to be available to companies carrying on a business, and were as follows:
- From 1 July 2015, the reduced tax rate of 28.5% was available for companies with an aggregated turnover up to $2 million during that income year;
- From 1 July 2016 the tax rate reduced to 27.5%, with more companies gaining access with the turnover threshold increasing to $10 million;
- From 1 July 2017, the tax rate will be unchanged & the turnover threshold increased to $25 million.
The implementation of the policy by the Australian Taxation Office has created confusion, with a draft Taxation Ruling and guidance on their website indicating that companies with passive investments (such as shares and property) could be seen to be carrying on a business and in turn be eligible for the small business tax cuts.
This interpretation seems to be contrary to the Government’s policy and it has been announced that they will introduce legislation to clarify which companies will be entitled to the reduced tax rate.