Australia’s corporate tax cuts – an incentive for doing business in Australia?
Overseas investors stand to be the main beneficiaries from the Federal Government’s plan to reduce the tax rate for companies carrying on a business from 30 per cent to 25 per cent by 2026-27.
Whilst Australia’s dividend imputation system means the cuts will have almost no impact on local investors, because cutting the company tax rate reduces the amount of franking credits they receive, the benefits will overwhelmingly flow through to foreign investors who pay tax on their dividends as well.
The move is in line with a global trend to reduce company tax rates. In the 2015-16 financial year, corporate entities carrying on a business with an aggregate (worldwide) annual turnover of up to $2million paid a lower rate of tax at 28.5 per cent. Since then, the aggregate turnover threshold for the lower company tax rate has progressively risen, being $10 million in 2016-17 and $25 million 2017-18. The tax rate has also reduced, currently 27.5 per cent.
The threshold will rise to $50 million from 2018-19 onward and the tax rate will progressively reduce to 25 per cent by the 2026-27 financial year.
The government’s stated intention is to introduce tax cuts for larger companies, with an aggregate (worldwide) annual turnover greater than $50 million a year, which would see rates reduce over time until all companies carrying on a business in Australia are subject to a 25 per cent tax rate.
While comparing the headline tax rate across different countries can be a useful measure for overseas companies in determining where to invest, it is, of course, only one of a number of factors to take into consideration. There is the broader business environment to consider, such as access to skilled labour, employment law, resources, wage costs and productivity. For companies that are considering Doing Business in Australia, click here to read our guide or contact us.
Should you have any questions in relation to this matter or would like additional information, please call your relevant ESV engagement partner on 02 9283 1666.
For more information on Doing Business in Australia click here