The big winners from the biggest corporate tax deal: The Australian taxpayer is getting a windfall
The Coalition government’s decision to make the largest corporate tax cut in its history and to give corporations a tax break worth about $5 billion was seen as a victory for the taxpayer.
But critics warned the deal was just a start and it would be years before the country had a genuine tax reform package.
The Government is expected to announce the new $5.5 billion corporate tax break later this week, with a full package to be unveiled in the coming weeks.
Key points:The $5bn corporate tax reduction will provide $2.8 billion in tax relief over the next four years for Australia’s biggest companies The changes are expected to reduce the rate paid by Australian companies by about half the rate that is currently paid to the federal government.
Treasurer Joe Hockey said the government had taken the “highest possible decision” and would now take the next steps to ensure Australians pay their fair share.
“Australians are already paying the highest tax rate in the OECD,” Mr Hockey said.
“They’ve got a big challenge ahead of them in terms of their tax system.
Australians should be paying the same as the OECD.”
The corporate tax cuts announced today are among the largest in Australian history.
More than $1.2 billion was handed back to the Australian taxpayer over the course of four years, and the Government said it was the biggest tax cut since 2001.
Under the deal, the rate for multinational companies will be cut by 25 per cent from the current 25 per in the Australian Taxation Office’s annual tax returns to 24 per.
Mr Hockey said it would provide $1 billion in relief to Australian businesses.
But he said the Government would only take that $1bn into account in the future and would not be “going backwards” on what was already in place.
In a speech to business leaders in Melbourne, Mr Hockey outlined the plan to give companies a tax relief worth about half that paid to federal governments.
He said he was confident the changes would be a “big part” of the tax reform plan to come.
It will allow Australian businesses to save on taxes by reducing the rate of tax paid by some multinationals by 25 to 30 per cent, and by half to 50 per cent.
A reduction in the rate will mean that many of the companies with tax havens will no longer be able to hide their profits.
Tax cuts for businesses that are multinationals are currently paid by individual taxpayers.
Companies have to pay a 25 per per cent tax on profits from the profits of their multinational subsidiaries.
This tax is paid by the corporate entity, and is then passed on to the company’s shareholders, the Government says.
Many multinationals avoid paying the 25 per and 50 per tax rates because of the way they structure their structures.
Currently, corporations pay a 15 per cent rate on income earned overseas.
An Australian corporate tax rate of 25 per means that the company will have to have a foreign-based subsidiary in order to avoid paying this rate.
When a company is a foreign company, the corporation is required to hold a foreign subsidiary in Australia.
There are currently three foreign subsidiaries registered in Australia, all of which are foreign owned, meaning that the corporate entities are in a position to avoid Australian taxes by paying foreign tax on their profits, instead of paying Australian tax on income from Australia.
“The $2 billion will help create a more competitive corporate tax system for Australian companies, and will ensure Australians don’t pay too much of their income tax in Australian dollars,” Mr Abbott said.
“It will also help ensure that the Government does not over-tax our multinationals, and therefore help to support the economic recovery and jobs.”
The announcement comes as the Turnbull Government announced the launch of a review of its multinational tax regime.
Prime Minister Tony Abbott and Treasurer Joe Hockey both say the changes will be the biggest in Australian corporate history.
Read moreThe Government has set out its corporate tax reforms plan for next year, which will set out how the tax code will be changed in coming years.
Opposition Leader Bill Shorten said the decision was a win for big business.
“This is a victory of the people over big business,” Mr Shorten told the ABC.
“[It] will allow Australians to save money while at the same time ensuring they don’t get taxed too much.” AAP/ABC