This example on the Treasury website, then goes
onto state that “the Government’s changes mean
that Lat Vat Pty Ltd. pays less tax, increasing its
cash-flow by $31,900”. This amount is the tax
value of the brought-forward deduction ($116,000
x 27.5% corporate tax rate = $31,900).
The Treasury statement is somewhat misleading,
however, because while the company will be
paying “less tax” under the new law, it would
pay more tax in subsequent years (but no more
overall) because no depreciation claim is available
as it has been exhausted. Consequently, business
owners should not let tax distort or blur their
commercial instincts – as they don’t get any extra
cash than they would otherwise have under the old
rules (they just get it sooner) they should continue
to only buy assets that fit within their business
plan. However, a return on investment calculation
will be more favourable due to the time value of
money. This might make the difference between
making a purchase and not making a purchase. So
while you are paying no more or less tax overall,
the ability to write-off an asset immediately,
means you will enjoy a significant cash flow
benefit under the changes. Cash flow is one of the
leading causes of small business failure.
FURTHER TAX CUTS?
The Government has abandoned plans to extend
the corporate tax cuts to companies with a
turnover in excess of $50 million. This means
that moving forward the company tax rates will
remain as legislated.
As well as having a turnover of less than $50 million, eligibility for the lower corporate
tax rate (currently 27.5%) depends on the company being a ‘base rate entity’ (see our
article on page 4 for a new development in this area).
Tax rate for base
Tax rate for
MY TAX SAVERS