The proposal is open for consultation and is set to conclude on 15 September 2025.

Australia’s Productivity Commission has published an interim report on 31 July 2025, proposing major changes to the country’s corporate tax framework.

The proposals include:

Pivot the corporate tax system to a more efficient mix of taxes 

The corporate tax system should be made more efficient by moving towards a system with a lower company income tax combined with a new net cashflow tax.

Lower the headline company tax rate to 20% 

Lowering Australia’s headline company tax rate to 20% would increase investment by increasing retained earnings, attracting foreign capital into Australia, and boosting the after-tax return companies receive on their investments.

Under the proposal, the company tax rate for Australia’s largest companies, with turnover above AUD 1 billion, would remain at 30%. In the long term, the government is expected to seek to fund broader, effective reductions in company income tax, depending on an evaluation of the initial reform.

Introduce a net cashflow tax (NCT) of 5% 

The initial reform should be revenue-neutral in the medium term and funded from within the company tax system. The Productivity Commission is therefore proposing a net cashflow tax of 5% to be applied to company profits.

This tax allows companies to deduct the full capital expenditure costs from their profits in the year they are incurred. Consequently, the net cashflow tax is more encouraging of capital expenditure than the current system, thereby helping to produce a more dynamic and resilient economy.

The new net cashflow tax is expected to create an increased tax burden for companies earning over AUD 1 billion. The proposed cashflow tax is designed to minimise any negative impact on investment.

The Commission has initiated a consultation on the proposed reforms detailed in the report. Feedback from this consultation will contribute to the final report, which is set to be released later this year.

The proposal is open for consultation and is set to conclude on 15 September 2025.