Publication date: 22 Sep 20 |
Source: THE TAX INSTITUTE
SYDNEY, 22 September 2020: There have been recent calls from some groups and commentators for the government to introduce an investment allowance in the upcoming Budget on 6 October. The Tax Institute is advocating for longer term vision and solutions and suggesting a corporate tax cut would be more beneficial to Australians on the whole.
While Investment Allowances are useful in bringing forward certain capital investments which can have positive knock-on effects, they are nearly always (and appropriately) set for a limited period.
The Tax Institute Director of Policy and Tax Technical, Andrew Mills, said, “While Investment Allowances have their place, they should be considered a limited, short term fix.”
Investment Allowances are of most benefit to capital intensive industries rather than the whole economy. There is limited benefit to knowledge economy companies (from the education sector to software developers) or to those industries that rely heavily on people (such as tourism, personal and professional services).
“One suspects those promoting an investment allowance may have been bitten before by attempts to make Australia’s corporate tax rate competitive,” Mr Mills said.
“A better solution to addressing both the short and long term needs of companies in Australia is to provide a universal corporate tax cut with immediate effect. Not only will this be of benefit for capital intensive industries, it will also encourage investment and jobs across more of the economy and provide stability and confidence in the future for investment whether in capital, knowledge or people.”
Australia currently has two corporate tax rates – the full company tax rate of 30% and the lower company tax rate of 26%, available to small and medium active business (known as base rate entities). Bringing the corporate tax rate down to a consistent 25% or less will also remove some of the confusion and red tape around the current split system for small “active” businesses on the one hand and small “passive” and large businesses on the other. Not only are those rules complicated, but they mean a company can be in and out of the lower tax rates from year to year.
And despite criticisms of a lower corporate tax rate in Australia, over recent years most countries have reduced their corporate tax rates. Often this is to bring investment back on to their own shores (USA, now 21%), recognise the growing international footprint of their companies (China and Korea, now both 25%) or compete with their neighbours (UK, 19%, Japan 23.2%).
“When our major trading partners and foreign investors all have corporate tax rates lower than Australia’s, it creates a disadvantage that will not be overcome by the short term fix of an investment allowance,” Mr Mills said.
“Now is the time to fix this mess and make Australia’s corporate tax rate competitive and support Australian companies investing and employing. The Tax Institute looks forward to seeing this initiative in the upcoming Budget.”
For more information, please contact:
Kelly Emmerton – Media Contact, The Tax Institute
02 8223 0029
The Tax Institute is the leading forum for the tax community in Australia. Our reach includes membership of 12,000 tax professionals from commerce and industry, academia, government and public practice and 40,000 Australian business leaders, government employees and students. We are committed to representing our members, shaping the future of the tax profession and continuous improvement of the tax system for the benefit of all, through the advancement of knowledge, member support and advocacy. Read more at taxinstitute.com.au
 The tax law defines a base rate entity as a company which both:
- has an aggregated turnover of less than $50 million; and
- 80% or less of their assessable income is base rate entity passive income.