Opposition leader Bill Shorten confirmed that if his party comes into power, it would unwind the tax cuts to entities with an aggregated turnover of less than $50 million, limiting those cuts to business between $2 million and $10 million instead.
The current tax cuts for entities up to $50 million at a rate of 27.5 per cent start from 1 July 2018, before progressively dropping to 25 per cent by 2026–27.
Speaking to Accountants Daily, CA ANZ tax leader, Michael Croker said that on a practical level, there would need to be re-education around tax rates and franking credits if Labor does come to power and manages to go through with its plans.
“We have corporate clients who were educated about the eligibility of the 27.5 per cent rate and now we have to re-educate them if Labor wins, about moving back up to 30 per cent,” said Mr Coker.
“Having just got some people used to the idea of franking dividends by reference to 27.5 per cent, we might now have to tell them to return to franking by reference to 30 per cent and it will be a little bit confusing for some people.”
Further, any changes to the rates might affect businesses that have put plans and projections in place in relation to the legislated rates.
“The coalition's corporate tax reduction roadmap was to give people some certainty that if they were planning to expand or to make a major investment that they could see where the company tax rate was heading so they could factor that into their financing and cash flow projections,” said Mr Croker.
“For people who have been thinking they were going to get that rate going forward and have factored that into their plans then accountants will probably have to recast those forward projections and plans and rejig those numbers to update for the change in policies.”
Additionally, Mr Croker believes having a two-tiered tax rate system for businesses might also disincentivise businesses from growing, and believes a lower, unified tax rate is necessary to keep up with other established economies.
“If we are to be a country which has a big company tax rate and a little company tax rate, we'll always be faced with some problems with businesses that start small and a tax rate that almost encourages them to stay small,” said Mr Croker.
“This idea that you have one rate for a small company, then you hit a turnover level that puts you into a higher tax bracket, creates all sorts of issues and people may try and do tax planning which is designed to retain eligibility for the lower rate.
“The Brits have got an objective of 17 per cent, for example, Singapore has got a very low rate, [US President] Trump has brought the rate down to 21 per cent so even at 25 per cent we're just bringing ourselves back to the middle of the pack rather than being at the lower end of the pack.”
Commenting on Mr Shorten’s decision, Treasurer Scott Morrison said up to 20,000 business and around 1.5 million Australians would be affected by the rollback.
“What he has said today is that he is not only going to roll back tax relief of $70 billion on Australians paying income taxes, he is going to roll back tax relief to help medium-sized businesses, many of whom are actually small businesses with a turn-over of up to $50 million and higher than $10 million; he is going to roll back their tax relief as well and make them less competitive,” said Mr Morrison in a doorstop interview.
“He still hasn't confirmed what he is going to do for businesses between $2 and $10 million.”
Mr Croker believes that with the next federal election around the corner, Labor has been drawn into making a point of difference in its policies and that “all may not be lost” even if they do get elected.
“We're just in this awful stage in our election cycle where people want clear-cut through policies that they think will resonate with the voting public and for Labor that means being tough on companies and making sure they pay their fair share and for the coalition it means lowering the company tax rate because in the longer term that encourages more investment and encourages more jobs,” said Mr Croker.
“It is really just setting itself up as a clear point of distinction between the two major parties and after all the politicking is over, maybe Labor might gradually find they have the economic circumstances to do something with company tax rates but at this stage in the process they just want to have that clear-cut through message and clear point of differentiation.”