As part of its government-mandated review into ways to strengthen productivity and economic resilience, the Productivity Commission has released an interim report proposing significant changes to Australia’s company tax system.
The Commission highlights that Australia’s current company tax regime is complex, internationally uncompetitive, and disproportionately disadvantages smaller and newer businesses. In particular:
- Australia’s corporate tax rates (25% for most small to medium businesses and 30% for larger companies) are high compared with similar economies.
- Rules governing deductions for capital investment (e.g. equipment, buildings, technology) are overly complex, reducing the incentive to invest.
- The current system favours debt funding over equity, making it harder for smaller businesses to raise capital.
Key draft recommendations
The Commission’s interim report proposes:
- Reducing the company tax rate to 20% for all businesses with annual turnover under $1 billion, with only the largest corporations remaining at 30%.
- Introducing a 5% Net Cashflow Tax (NCT) on company profits.
- Allowing immediate full deductions for eligible capital investments in the year of purchase, rather than spreading deductions over multiple years.
What happens next?
- These are draft recommendations only. The Productivity Commission is accepting public feedback until 15 September 2025.
- A final report will be released by the end of 2025, after which the government will decide whether to adopt, amend, or reject the proposals.
- If implemented, changes could be phased in from 2026, although no commencement dates have been confirmed.
Government response so far
The Federal Government has responded cautiously. Treasurer Jim Chalmers has described the proposals as “an important input” into policy discussions, noting they will feed into the Economic Reform Roundtable in August 2025. However, no formal endorsement has been given at this stage.
Key takeaway
While no immediate changes apply, the Commission’s recommendations—if adopted—could significantly reshape the business tax landscape. We are here to help business owners stay informed and consider how reforms such as reduced tax rates, full investment expensing, and the Net Cashflow Tax may impact their future investment and funding strategies. Why not get in touch today.