Proposed company tax cuts - Who benefits?

What is being proposed?

The Productivity Commission has recommended that Australia cut the company tax rate for businesses earning less than $50 million in annual turnover to 20% — down from the current 25%.

The proposal would create a two-tier tax system:

• Small and medium enterprises (SMEs) under $50 million: 20%
• Large corporations: remain at 30%

If adopted, this would represent the biggest cut in more than 40 years. The goal is simple — to make it easier for small businesses to invest, expand, and compete in a challenging economy.

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Why smaller firms need the break

Running a small business in Australia isn’t easy. Between high energy costs, interest rate hikes, and increasing wage pressures, many owners feel squeezed from every direction. A lower company tax rate would ease some of that pressure by allowing more of each dollar earned to stay in the business.

Here’s what that could mean in practice:

• Higher cash flow — A 5-point reduction in tax could translate to tens of thousands of dollars back into your business each year.
• More money for investment — That cash could go towards new equipment, marketing, staff, or technology.
• Greater resilience — Businesses with stronger balance sheets are better able to handle economic shocks or unexpected slowdowns.

In essence, tax cuts act as a buffer, a financial breathing space that allows owners to focus on growth rather than survival.

How lower tax rates boost the economy

Tax policy might sound like a technical debate, but it has very real consequences for jobs and innovation.

A lower rate for smaller firms stimulates activity in three key ways:

1. Encourages entrepreneurship – More Australians are likely to start their own business if the tax burden is lower.
2. Promotes reinvestment – Businesses are more likely to reinvest profits locally when they get to keep more of them.
3. Drives competition – Smaller firms can price more competitively, hire more people, and innovate faster. All of which strengthens the economy.

Countries like Ireland and Singapore have long used competitive tax rates to attract business investment and spur job creation. Australia’s proposed cut is designed to make local businesses just as competitive on the global stage.

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Why it’s gaining political traction

Politically, small business sits at the heart of almost every campaign message, and for good reason. SMEs employ around two-thirds of Australia’s workforce and contribute over $500 billion to the economy each year.

The proposal has broad appeal because it ticks several boxes:

• It supports “middle Australia” — Politicians can show they’re backing hardworking business owners.
• It drives growth without large government spending — A tax cut doesn’t require new programs, just foregone revenue.
• It attracts cross-party interest — Both major parties have acknowledged the need to boost productivity and competitiveness.

Still, it’s not without debate. Critics argue it could reduce government revenue and widen the gap between incorporated and unincorporated businesses. But the overwhelming sentiment from economists to industry groups is that smaller firms need relief now more than ever.

What it would mean for your business

If you run a company earning under $50 million, here’s how the proposed cut could benefit you:

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Even a few percentage points in tax savings can translate into better working capital, faster expansion, and the ability to hire more staff.

When could it be implemented?

At this stage, the proposal is not yet law — it’s a recommendation from the Productivity Commission. For it to take effect, it would need government approval and legislation through Parliament.

If the government adopts the idea, the change could realistically begin from the 2026-27 financial year, allowing time for budget forecasting and Treasury modelling. The timeline would also depend on the next federal election cycle and the political appetite for reform.

In the meantime, business owners should stay across developments and plan for different scenarios. Whether or not the full 20% rate is adopted, tax policy is clearly moving in favour of small business relief.

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The bigger picture: why small business success matters

Small businesses aren’t just an economic category — they’re the heart of communities. They hire local people, sponsor local sports clubs, and keep towns alive. When small business thrives, the broader economy becomes more dynamic, innovative, and self-sustaining.

Cutting the company tax rate isn’t just about numbers — it’s about unlocking potential. It’s about making it easier for founders, tradies, and local operators to take risks, grow, and succeed.

Final thoughts

The proposed company tax cut to 20% is more than a policy idea — it’s a statement about Australia’s economic direction. It signals that small business is not just tolerated but prioritised.

If implemented, it could mark the start of a new growth chapter — one where smaller firms are empowered to compete, invest, and create jobs. For now, the key is to stay informed, plan ahead, and be ready to seize the opportunity when it arrives.