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June 30, 2020

Reduced Tax Rate for SMEs from 1 July 2020

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James Morris
Reduced Tax Rate for SMEs from 1 July 2020

Starting from Wednesday (1 July 2020) the small business tax rate will be reduced from 27.5 percent to 26 percent for businesses with turnover of less than $50 million.

The tax rate to set to reduce again in the 2021-22 financial year to 25 percent.

The change comes from a tax plan put in place by the Turnbull government, with a proposed corporate tax rate cut for SMEs with turnover of less than $50 million from 30 percent to 25 percent over a 10 year period.

This was adjusted after the industry lobbied for government to bring forward the enterprise tax cut, with the Morrison government announcing legislation would be brought forward five years earlier.

The full company tax rate of 30 per cent applies to all companies who are not eligible for the lower company tax rate.

Prime Minister Scott Morrison and Treasurer Josh Frydenberg were quoted in 2018, saying that the tax rate cut would help to ensure Australian businesses are competitive. In a bid to protect the economy and Australian jobs.

For a small business that makes $500,000 in profit, this will mean an additional $7,500 in 2020-21 and $12,500 in 2021-22 that can be invested back into the business or staff, or to help manage cash flow.

A corporate tax entity can be taxed at the lower rate if it is a base rate entity.

The ATO outlines a corporate entity is a base rate entity if the following points are met:

  • No more than 80 per cent of the businesses assessable income is base rate entity passive income such as interest, dividends, rent, royalties and net capital gain.
  • The businesses aggregated turnover is less than the relevant threshold ($25 million in the 2017-18 income year, $50 million from the 2018-19 income year).

How will this affect you?

Our team of accounting professionals have extensive knowledge on business advisory. Talk to us to discover more tax-saving guides and how to make the most of the changes. Book an appointment today.

Want to know more?

For everything tax related from tax tip videos to webinar recordings, we’ve put it all together on one page. Check it out here. This page will be regularly updated during tax time, so remember to check back in for more value-packed information.

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Do you have questions on Government stimulus measures and how they may affect you or your business? Our Modoras team are ready to assist in building a resilient business. Contact us on 1300 888 803 and book a catch up with a Modoras professional.

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