Q: Does the company tax rate really make any difference to a small business owner?

The company tax rate is somewhat irrelevant when it comes time to take surplus cash out of the company by the small business owner and investor. Generally, “mums and dads” who trade or invest through a company structure will need to pay “top up tax” which is the difference between their personal tax rate and the company tax rate, when taking profits as wages, directors’ fees, or dividends for personal expenses such as paying off a house, school fees, holidays, or a boat. 

Their personal income tax rate is primarily determined by how much money they withdraw from their company. For instance, if the business owner receives income of more than $135,000, their tax rate is 32% or 47%, which is higher than the company tax rate of 25-30%. Subsequently, they will need to pay the extra tax personally. 

The company owners can’t just rip out cash from their companies, these withdrawals will result in them owing money to the company which is very problematic 

In conclusion, the difference between a company tax rate of 25% or 30% has minimal impact on small business owners when it comes time to take surplus profits out of their company.