A "One Percenter" in Australian Rules Football are those little actions which a player undertakes which by themselves have only a marginal effect on a player's game, but add up all of the One Percenters and instead of them being only marginal, together they start to make a difference.
Treasurer Wayne Swan has suggested as early as the 2010 election campaign that the Company Tax Rate for small business should be lowered from 30% to 29% but as we shall see, that 1% does add up very quickly.
Firstly there is something special about small businesses' Profit & Loss Statements which large businesses do not have the luxury of dealing with. Most small businesses employ their directors directly and this has some rather important ramifications.
Company Tax is a tax which is assessed on a company's profits. Profits are directly affected by the level of input costs. The question therefore needs to be asked whether or not to pay a director either a wage which will reduce the level of Company Tax which is finally assessed, or whether to pay a director a dividend which can either be franked or unfranked. A Franked Dividend is only on which Company Tax has already been paid, and thus those Franking Credits can then be used to offset tax payable on the director's Individual Income Tax Return.
Owing to the fact that individual's have a tax-free threshold but companies do not, and that individual income tax rates extend higher than 30%, the break even point in which the total tax payable either through the company or the director's personal income is for the Financial Year 2012/13, $152,000. At that point anything higher which is paid as a wage is more expensive because the marginal tax rate of 37% applies from every dollar in the individual's hands from $80,001 onwards.
Had Mr Swan been able to convince the parliament that small businesses should have their rates Company Tax Lowered to 29% then although tax payable in the hands of the company would be less, those franking credits available would also be less. The break even point for the Financial Year 2012/13 would have been only $126,474 because of that very fact.
A lower rate of Company Tax also would have had effects on people earning dividends paid by the company. At 29% instead of 30% a person receiving a dividend would not have as many franking credits available to them; the net effect in the hands of the recipient is either a loss of 1% in tax benefits or in the case of anyone earning more than $37,001 a 1% increase in effective tax on those dividends.
The thing is that although 1% reduction in Company Tax does result in less overall tax taken by the government, there is a sting in the tail because that shortfall has had to have been made up for by a 2.5% increase in the marginal tax rate from $37,001-$80,000 which is where a lot of people lie.
When we do people's Tax Returns at work, we often play with several results at the same time; using re-iterative calculations. If a business was straddling the line between being a small business and a large business (which again I don't really know where that would be because no official papers have been published), would a company have to keep two sets of franking accounts? I can tell you that in the years when the Company Tax rate was reduced from 36% to 33% and finally 30%, keeping several sets of franking accounts was annoying for accountants and probably resulted in marginally higher accountancy fees.
What I want to know is, is the intent of lowering small business Company Tax rates to 29% purely about providing relief to small business, or is it about surreptitiously shifting the burden of taxation to individuals to collect more tax overall? I already think that Swanny is easily the best person for the job of Treasurer; I also happen to think that he's probably a lot more wiley and cunning than he lets on... and that's a One Percenter just there.