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Small Business Tax Rates in Australia

“There are only two certain things in life: death and taxes,” as they saying goes. For small business owners in Australia, this is also true as taxes are an inevitable part or running a small business. Fortunately, recent changes in the tax laws have moderately lowered the small business tax rates in the country. Below, we offer a complete rundown on these tax rate changes, as well as looking at how this compares to other countries such as the United States and the U.K.

Current Small Business Tax Rate in Australia

The Australian Taxation Office reports that the full company tax rate currently stands at 30 percent while the lower company tax rate is slightly lower at 27.5 percent. Every company that cannot claim status as either a base rate entity or a small business must pay the higher rate.

A base rate entity is a company can show a total aggregated turnover that is less than $25 million for the 2017–18 income year. A small business entity any business that can prove an aggregated turnover of less than $10 million dollars.

The 27.5 percent tax rate for small businesses and base rate entities is slightly lower than the 2015-2016 income year when the lower company tax rate was slightly higher at 28.5 percent. Furthermore the threshold for determining a small business has also been drastically raised as the aggregated turnover limit for small businesses used to be less than $2 million.

Thus, not only has the small business tax rate been lowered in recent years, but the limit on aggregated turnover has also risen fivefold. Furthermore, and perhaps more importantly, by next tax season the aggregated turnover threshold will increase to $50 million and by the 2026-2027 tax year, the small business tax rate will decrease to 25 percent while the 30 percent tax rate will remain steady for all larger businesses.

Income Tax Offset Changes for Small Businesses

Furthermore, small businesses also stand to benefit from the small business income tax offset. This benefit is available to businesses registered as sole traders or those business owners who own a share of small business income from a partnership or trust.

Starting in the 2016–17 income year, this tax offset for small businesses increased to 8 percent and has a limit of $1,000 each year. It will gradually increase to 16 percent by 2026-2027, and is applicable to small businesses with a turnover over less than $5 million.

How the Small Business Tax Rate in Australia Compares to other Countries

While small business tax rates will continue to decrease at least for the next 7-8 years, in countries such as the United States and the U.K., small business tax rates can be either higher or lower, depending on the type of business. In the U.S. for example, the complicated IRS tax code offers small business tax rates that range from 15 percent to 39 percent, depending on the income, size of the business, and other variables. In the U.K., however, the small business tax rate is much lower at only 19 percent for taxable income below £300,000.

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