A proposal from Australia’s Productivity Commission could see the introduction of a cashflow tax, altering the way companies are taxed and potentially influencing superannuation investments. The suggested reform, paired with a cut in corporate tax for smaller firms, is designed to encourage greater business investment.
According to the Commission, this approach would make capital investment more attractive, but its benefits would be limited to companies with less than A$1 billion in annual revenue.
How the Proposed Cashflow Tax Would Work
The Productivity Commission’s proposal combines two key measures: a reduction in the corporate tax rate from 30% to 20% for qualifying businesses, and the immediate deductibility of capital expenditure from taxable income. Changes that could indirectly influence superannuation returns through shifts in company performance.
Under the current system, a company earning A$100 million in profit pays 30% tax—A$30 million—before making any capital investment. The proposed model would allow that company to deduct investment costs immediately. For example, if A$20 million were spent on a new facility, the remaining A$80 million would be taxed at the new 5% cashflow rate.
According to the Commission’s report, this would lower the cost of capital and increase the likelihood of businesses pursuing expansion projects. The measure is intended to stimulate investment and, in turn, improve productivity and living standards.
However, the benefits would be restricted to firms with annual revenues under A$1 billion. This means that large corporations such as Wesfarmers, JB Hi-Fi and Myer—all exceeding the revenue threshold—would not qualify for the tax cut and would still face the cashflow tax. For these larger companies, the change could result in a higher effective tax burden compared with the current system.
Potential Implications for Investors and Superannuation
While the reform is positioned as pro-investment, its selective application raises potential consequences for investors, particularly those whose portfolios are heavily weighted towards large-cap companies.
Many superannuation funds employ index investing, holding shares in the top 200 listed firms on the ASX. These larger companies would be ineligible for the reduced corporate tax rate, leaving them only subject to the cashflow tax. This could place them at a relative disadvantage compared with smaller firms, potentially affecting share performance over time.
According to the Commission, smaller companies outside the ASX 200 could benefit most from the policy, as lower tax rates and immediate investment deductions might enable faster growth. For investors, this could shift the appeal towards small- and mid-cap equities if the proposal is implemented in its current form.
The Productivity Commission’s recommendations are part of a broader effort to reform Australia’s tax system and boost economic performance. While the plan is still under consideration, its potential to influence both corporate strategy and investment patterns is drawing close attention from policymakers, businesses, and the superannuation industry.
