Federal Budget: SME-Friendly Tax Proposals

The Federal government has launched a growth-friendly, 10-year enterprise tax plan aimed at boosting investment, creating jobs, and increasing wages beginning with tax cuts and incentives for SMEs.

“We need a tax system that supports enterprise by backing businesses to invest.”

– Scott Morrison, Australian Treasurer

Small businesses are the foundation of an innovative and thriving economy, creating jobs and driving growth. In recognition of the significance of small business, a new regime for taxes has been presented in this year’s budget.

“Australian small businesses contribute significantly to our economy. To make it easier for these businesses to invest and expand to create more growth and jobs, the company tax rate will be cut, with small businesses benefitting first.”

– Scott Morrison, Australian Treasurer

Key Details

There will be a boost to companies with a turnover of less than $10 million from July this year with a reduced tax rate of 27.5%. This change will capture around 870,000 companies who employ around 3.4 million workers.

In addition, the Plan contains the proposal that the turnover threshold to access the reduced tax rate will be incrementally raised until 2023-24.

“This will mean by 2020, more than half of all employees of companies in Australia will be in companies paying a lower tax rate of 27.5 per cent”

– Scott Morrison, Australian Treasurer

By 2026-27, the corporate tax rate will be reduced to 25% for all companies. The Federal government will also increase the unincorporated small business tax discount to 8% and raise it to 16% by 2026, and extend the turnover threshold from $2 million to less than $5 million.

“This will significantly increase the attractiveness of investment into Australia and make Australian companies more internationally competitive in a tough global marketplace.”

– Scott Morrison, Australian Treasurer

UK Tax Incentives

The UK already has an alternative regime in place, supporting investment in innovation-based businesses. Two successful initiatives are the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

EIS and SEIS provide incentives for individual investors to support small business by reducing risk for the investor. Losses arising from investments in SEIS/EIS-approved companies are eligible to be offset against investors’ tax bills, allowing taxes on other gains to be reduced.

“EIS is a vitally important part of the company funding cycle that is enabling thousands of smaller companies to take the next step in their development with the help of financing provided by the British investing public.”

- John Glencross, acting Director General EIS Association

Australia’s new scheme addresses tax incentives from the business’ point of view, rather than the investor’s. Both sets of initiatives display a keen willingness by governments to support the startup sector, and further underline its tremendous importance. Equitise welcomes these exciting changes in Australia’s fiscal landscape as part of a wider effort to strengthen this vital sector.

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