Miscellaneous 2017

Small business: Reduced company tax rate and imputation changes

Source: Taxation In Australia Journal Article

Published Date: 1 Aug 2017


There has been much recent publicity about the reduction in the company tax rate for small business. The enactment, and the implications, of the reduced imputation credit/franking allocation are not so well known. The latter, in particular, has practical implications for paying dividends out of pre-30 June 2016 retained profits which have been taxed at either the 30% rate or the 28.5% rate. In this article, the author argues that the small business tax rate cut has a real cost to existing small business taxpayers and their resident shareholders for pre-existing profits. The top-up tax on dividends paid has, in effect, increased for dividends paid out of pre-30 June 2016 profits. When this change is combined with the small business tax offset measures (for sole traders, partners and beneficiaries of trusts), the combined effect is to provide greater incentives to move away from using a corporate vehicle for business structures as the tax rate reduces over time.

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Miscellaneous 2017

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