Looks like the Turnbull Government have secured passing of last year’s budget measures to reduce the company tax rate. Most relevant here is the 2017 year sub $10m 27.5% rate (down from 28.5% and previously 30%). This rate will be further reduced all the way down to 25% over ten years.
Does this represent any tax planning opportunities? Yes and no. It’s clearly a reduction in the company tax rate on profits (a reduction of 1%). However, the effect of the franking system is that once profits are disbursed the shareholder will pay the difference back to their same personal rates. So, unless you are planning in retaining profits in your company for growth (possibly hold some investments), the benefits are probably not substantial to the smallest businesses in Australia. I think perhaps a small business entity rate of 20% would have made a real incentive to retain profits and grow.
Also, keep in mind that if your company is involved in capital gains events then the general 50% discount (if held asset for more than 12 months) is not available. So theoretically an individual on a 40% (circa) tax rate can get an effective capital gain rate of 20%. If you are on the highest personal rate of 49% then 24.5% beats 27.5% as well. That’s when a trust is worth looking at.
There are always tax planning opportunities within our system – especially if your business is really going somewhere and creating profits and capital value. Just don’t wait until that value is all created before you start thinking about tax.