This week, the Senate passed the Government's small business tax cuts including the accelerated depreciation and the 1.5% cut to company tax rate for companies with turnover of less than $2 million. It is unclear whether the 5% tax cut for un-incorporated small business entities was also passed in the Senate.
We will update this blog once the legislation is published on the ATO legal database.
1.5% Tax Cut for Companies
This will apply to companies with an annual turnover of less than $2 million. The new company tax rate will be 28.5% and will be effective from 1st July 2015 (i.e. 2016 financial year).
5% Discount for Other Business
This will apply to entities which are not incorporated, such as sole traders, and will be effective from 1st July 2015 (i.e. 2016 financial year). The discount will be capped at $1000. Your tax rate will depend on the income bracket that you are in.
Example 1:
You are a sole trader with a business profit of $50,000 and your taxable income is also $50,000. You would ordinarily pay around $8788 including the 2% medicare levy.
Since you would be eligible for the 5% discount, you could calculate the discount as 5% x $50,000 = $2,500, reduced to the cap = $1,000. So the tax you pay would be $7788.
Example 2:
You are a sole trader with a business profit of $22,000 and your taxable income is also $22,000. You would ordinarily pay around $832 including the 2% medicare levy.
Since you would be eligible for the 5% discount, you could calculate the discount as 5% x $22,000 = $1,100. However, as you only have a tax expense of $832, the discount would be capped at that amount, so the tax you pay would be NIL.