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Australia to cut corporate tax rate


Wayne Swan, Australia’s Deputy Prime Minister and Treasurer, has released draft legislation to cut the corporate tax rate by one percentage point to 29%.

Swan indicated that the cut is designed to “help Australian businesses right across the economy – including the many businesses that are not in the mining boom fast lane and face challenges such as those flowing from a higher dollar”.

The rate will apply to all companies from 2013-14.

“Cutting the company tax rate will increase productivity, promote broad-based economic growth and encourage more investment and jobs across Australia’s entire economy,” said Swan.

The reduction is being funded by the minerals resource rent tax (MRRT) – a tax on the profits of Australian mining companies, due to commence on July 1, with Swan saying “it is one of the ways the Gillard government is spreading the benefits of the nation’s mineral wealth”.

“The timing is being driven by efforts to get the minerals tax through the parliament, but one percentage point is not enough,” said Jonathon Leek, partner at Corrs Chambers Westgarth – Taxand Australia. “The Henry Review recommended a corporate tax rate of 25% to make Australia internationally competitive. But the government is determined to deliver a budget surplus in 2013 and everything else is taking a back seat to that priority. So there is no further reduction on the horizon.”

Political opponents are not supporting the reduction, though the position of opposition leader Tony Abbott is not clear.

“The opposition is opposing the cut on the basis it is to compensate for a tax rise in the form of the minerals tax which they oppose, but the opposition has also suggested a 1.5% cut, so its position is also unclear,” added Leek.

The Business Council of Australia has said that if the MRRT is to be implemented, then a company tax cut is “essential for the strength of the Australian economy”.

Jock McCormack, partner at DLA Piper, said the move is a sensible ploy by the Gillard government.

“It appears, like the possible rollback of tax losses being proposed, to be an initiative to be seen to be doing something for small business without a significant cost or revenue,” he said.


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