Company and business taxation – May 2016
The Government announced in the Budget that it will reduce the company tax rate to 27.5 per cent in 2016-17 for companies with a turnover of less than $10 million.
Under the complicated arrangements for a rolling series of company tax cuts out to 2026-27, the income threshold for the lower rate will rise each year until 2022-23 when it will cover businesses with a turnover of $1 billion.
In addition, the tax rate will start falling from 27.5 per cent in 2024-25 until it falls to 25 per cent in 2026-27.
Franking credits to shareholders in the companies will fall in line with the reduction in company tax.
It will reduce the company tax rate to 25 per cent over 10 years, for companies with a turnover of up to $1 billion.
The tax rate for businesses with an annual aggregated turnover of less than $10 million will be 27.5 per cent from the 2016-17 income year. The threshold will be progressively increased to ultimately have all companies at 27.5 per cent in the 2023-24 income year. The annual aggregated turnover thresholds for companies facing a tax rate of 27.5 per cent will be:
- $25 million in the 2017-18 income year;
- $50 million in the 2018-19 income year;
- $100 million in the 2019-20 income year;
- $250 million in the 2020-21 income year;
- $500 million in the 2021-22 income year; and
- $1 billion in the 2022-23 income year.
In the 2024-25 income year the company tax rate will be reduced to 27 per cent and reduce progressively by 1 percentage point per year until it reaches 25 per cent in 2026-27.
Franking credits will be able to be distributed in line with the rate of tax paid by the company making the distribution.
This measure is expected to have a cost to revenue of $2.7 billion over the forward estimates.
The Government will increase administrative penalties imposed on companies with global revenue of $1 billion or more who fail to adhere to tax disclosure obligations. This measure will apply from 1 July 2017.
Penalties for lodging non-complying tax documents with the Australian Taxation Office (ATO) will be increased by a factor of 100. This will raise the maximum penalty from $4,500 to $450,000, which will help to ensure that multinational companies do not opt out of their reporting obligations.
Penalties for making non-complying statements to the ATO will be doubled, to increase the penalties imposed on multinational companies that are being reckless or careless in their tax affairs.
The Government is amending Australia’s transfer pricing law to give effect to the 2015 OECD transfer pricing recommendations. The amendment will apply from 1 July 2016.
Diverted profits tax
A new tax aimed at multinational corporations that artificially divert profits from Australia will be introduced. The tax will apply to income years commencing on or after 1 July 2017. This measure is estimated to have a gain to revenue of $200 million over the forward estimates.
The new tax will target companies that shift profits offshore through arrangements involving related parties:
- that result in less than 80 per cent tax being paid overseas than would otherwise have been paid in Australia; and
- where it is reasonable to conclude that the arrangement is designed to secure a tax reduction.
The measure will apply to large companies with global revenue of $1 billion or more. Companies with Australian revenue of less than $25 million will be exempt, unless they are artificially booking their revenue offshore.
Tax Avoidance Taskforce
The Government will provide $678.9 million to the Australian Taxation Office over the forward estimates to establish a new Tax Avoidance Taskforce. This will enable the ATO to undertake enhanced compliance activities targeting multinationals, large public and private groups and high-wealth individuals.