Today the Government is announcing a three year process to reform the timing of company tax payments by large companies, better aligning them with GST payments by large businesses.
The total tax paid by companies will not change, but from 1 January 2014 companies with turnover of $1 billion or more will be required to remit their Pay As You Go (PAYG) company tax instalments monthly, not quarterly. Companies with turnover of $100 million or more will have a further one year period to prepare for this change, with monthly payments to start on 1 January 2015. Companies with turnover of $20 million or more will have over three years to prepare for the change, with monthly payments to start on 1 January 2016.
This reform will make the tax system more responsive, efficient, and consistent by better matching tax collections with the economic conditions faced by business. Affected companies will pay smaller tax instalments immediately following months when business is down, and larger instalments when business is strong. It will also align company tax instalments with GST payments to streamline companies' payment cycles.
Most companies are currently required to pay their income tax in four quarterly PAYG company tax instalments, but most large companies are generally required to pay GST in monthly payments. Wage and salary earners have tax withheld from their income as it is earned. Moving large companies to monthly income tax instalments will go a long way to addressing these inconsistencies.
The Government believes that if workers are required to pay tax as they go, then it is reasonable and logical for large companies to do the same. This change continues the reform of the company tax instalment system that began in the late 1980s and complements other initiatives the Government has announced to address timing disparities in the tax system, such as 'loss carry-back', which allows businesses to use losses more flexibly, as well as more timely access to the Research and Development Refundable Tax Offset.
This measure will affect around 350 companies from 1 January 2014, around 2,500 companies from 1 January 2015 and around 10,500 companies from 1 January 2016.
The Government will consult with affected parties to ensure that the reform can be implemented with minimal disruption for businesses.
Taxpayers don't want to over-pay their tax, or be left with an unwieldy tax debt at the end of the year. The Government knows the timing of payments is only one part of this story. Through consultation, the Government is open to additional reforms to the calculation of PAYG instalments that can complement this measure and ensure that total instalments paid throughout the year match as closely as possible to the final tax liability.
A consultation paper will be released by early next year.