The unintended benefits of a 32% effective tax rate
10 May 2018 | Minutes to read: < 1

The unintended benefits of a 32% effective tax rate

By William Buck

Treasurer Scott Morrison’s budget announcement to immediately lower tax rates will also have the unintended benefit of reducing tax avoidance. 

The proposed personal tax rate changes mean by 2024-25, 94 per cent of individuals will have a 32.5 percent or lower effective tax rate.

Greg Travers, Director of Tax Services says while the government may be aiming to provide tax relief, it would also significantly reduce the tax planning motivation for most individuals.

“The Government may be aiming to provide tax cuts to low and middle income earners, but they will actually help reduce tax avoidance at the same time,” Travers said.

“The biggest motivator for tax planning – such as income splitting – is the difference between the company tax rate and the individual tax rates,” he said.

Travers said these individual measures would redress the balance with those company tax rates already introduced on July 1 2017, meaning there would be less inclination to minimise their tax.

“Companies will be paying 27.5% or 30% tax, and excess imputation credits will still be refundable,” he said.

Travers said these measures along with targeting the Black Economy, would make an effective combination.

“Combined with extra resources for the ATO for compliance, this could be a very effective set of measures.” He said.


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