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Small Business Tax Rate Reductions

Tax cuts for small business have been accelerated and will drop to 26% in 2020-2021 from 27.5% currently. It will then drop a further 1% to 25% in 2021-2022. Of course, there are eligibility requirements to qualify for these tax cuts.

In order to qualify a business needs to be a ‘Base Rate Entity’ (BRE) which means companies with an aggregated turnover of up to $50 million. Additionally no more than 80% of the income can be passive in nature. Put simply passive income is things like dividends, rent & interest. Your accountant will be able to discern whether your income is ‘passive’ or not.

All other companies that do not qualify as a BRE will remain at the 30% tax rate.

Small Business Income derived from other structures (like Sole Trader’s, Partnership’s and Trust’s) are entitled to a Small Business Offset. This tax offset has been increased to 13% in 2020-2021 and 16% in 2021-22. This offset is capped at $1,000 per individual.

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