In the 2016-2017 Budget, the government announced it would reduce the corporate tax rate progressively from 30% to 25%.

After some time, the government has finally reached a deal with the Nick Xenophon Team to pass its proposed company tax cut and the amended legislation will over time lower the company tax rate for business with an annual turnover of up to $50 million.

The Government wanted a flat company tax rate for all businesses over the next decade, but was forced to negotiate with the crossbench to get the measures through the Senate.  Companies with an aggregated annual turnover below $2million are taxed at 28.5% and companies with an aggregated annual turnover of $2 million or above are generally taxed at 30%.
There was also legislation seeking to increase the small business turnover threshold to $10million.  This would have allowed these businesses to access other possible advantages under the small business entity regime, however this legislation is yet to pass.
The reduction in the company tax rate has reduced the amount of tax payable for more than 90% of incorporated businesses with an annual turnover of under $2 million.

The reduction in tax was introduced with the intention of improving the cash flow of incorporated small business and increasing their capacity to engage in the economy.
Business is certainly pleased many smaller companies will still get some relief, but a genuine small business tax cut would not exclude the majority of small business operators who pay income tax – not company tax.

The Australian government also believed a reduction in company tax rate would encourage small business to employ more staff.  ABS figures show that, although businesses with fewer than 20 employees account for more than 40% of the workforce, they have generated only 18% of the increase in employment during the past five years, where businesses with more than 200 employees have accounted for more than half the increase in total employment in that period.

Instead of addressing the major problems, the Turnbull Government based on its perception of how business works, seems determined to rely on the idea that if it succeeds in cutting tax revenue the benefits will trickle down and cause economic growth, so whether these cuts alone will be enough to achieve this remains to be seen.

Many Australian businesses now need to compete in a global arena and the constant threat of overseas competition, such as Amazon entering our market, means any meaningful advantages that can be  delivered by the government are welcome.  This brings us to a more even footing with other countries.