Drop in Company Tax Rates No Benefit to Small Business
COMPANY tax is now not going to drop to 29% and this has caused a lot of uninformed comment about the effect on small business.
The reality is that most small businesses do not work through a company structure a they tend to be sole traders or in partnerships. But, even if they did work through a company, a cut in the company tax rate from 30% to 29% is not going to compensate them for the extra cost of compulsory superannuation going to 12%.
Suppose a business uses a company structure and has a gross income of $500,000. From this, deduct general running costs of $100,000 and wages of $300,000. Under the present system, compulsory superannuation would add 9%, or $27,000, to the wages bill, bringing total expenses to $427,000.
This will leave the company with a profit of $73,000 on which company tax at 30% would be $21,900, leaving a net profit after tax of $51,100 for the shareholders.
If compulsory superannuation rises from 9% to 12%, and all the other figures remain unchanged, the superannuation bill would rise to $36,000, and reduce the pre-tax profit from $73,000 to $64,000. …