Net cash flow tax: What is it and what will it mean for SMEs?

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Following the Productivity Commission’s net cash flow tax proposal for bigger businesses, discussion around its impact on small businesses has surfaced.

Despite extensive conversation around the new tax proposal within the big business space, many small business owners are unaware of what the tax would entail and how it could add more regulatory change.

Feedback from the tax community following the surface of the net cash flow tax proposal was that they had never heard of it before, which was likely as the tax would be a world first and was often only discussed among tax specialists.

The net cash flow tax was proposed by the Productivity Commission before the economic reform roundtable in one of its five interim reports, titled Creating a more dynamic and resilient economy.

The net cash flow tax was proposed as 5 per cent on company profits while enabling companies to deduct capital expenditure costs to boost corporate investment.

According to the commission, the net cash flow tax would be a simple formula; cash in - cash out = net cash flow, with companies having to pay a 5 per cent tax on that final number.

However, the Productivity Commission said that the net cash flow tax was not intended to stand alone and would be paired with the suggested lowered company tax rate of 20 per cent for businesses with revenue under $1 billion.

From this, the commission said it estimated that the combined corporate tax reform and 5 per cent next cash flow tax would boost investments by $8 million while being revenue neutral over the medium term.

Despite this proposal being both never seen before and more focused on larger businesses rather than small ones, Accountants Daily reported last week that the tax could have adverse impacts on the small business community.

Letty Chen, the Institute of Public Accountants (IPA) tax and super adviser, said the professional accounting body would stand against the tax proposal for the threats it posed to the small business community.

As most small businesses continued to battle compliance challenges, Chen said the introduction of a net cash flow tax could add to this significant burden.

“Net cash flow tax has a valuable policy intent, but it must be designed with simplicity in mind to avoid creating a new and disproportionate burden on the small business sector, which accounts for the vast majority of Australia's businesses,” she said.

Following the release of the article and commentary, tax practitioners took to LinkedIn to share their thoughts on the tax, with many specialised in the small business community noting they hadn’t been aware of the tax proposal.

Natalie Lennon, Two Sides Accounting founder and director, said she could not believe the government was considering the tax.

“What a joke. SMEs need less red tape, not more. Another tax and more compliance complexity at a time where SMEs and accountants are already at breaking point.”

Other comments on the online forum included: “There are a lot of burdens on small businesses already, this will unintentionally create more…. And has the potential to make business owners look to other countries as better options to do business from. Australia is a tax heavy country; it can already be challenging with more layers.”

“Another complication for SMEs. Interesting that in the last Federal Budget, it was the first time in history there were more Australians employed by small businesses than by the government.”

“I think it's about time the government helped small business by either leaving it alone, or simplifying their life - not making it harder, and more expensive to get their compliance work done!”

The Business Council of Australia (BCA) has continued to weigh in on the conversation and recently added that the net cash flow tax risked lower GDP and raised costs for Australian consumers.

Bran Black, BCA chief executive, said based on modelling done by the body, the new tax would negatively impact economic growth and the hit to GDP would be around half a per cent every year.

“Far from boosting growth, a new cash flow tax would drag Australia’s economic growth down each and every year, while creating an entirely new system of red tape for millions of businesses,” Black said.

“The path to more investment and prosperity for all Australians does not come through an experimental new tax on every business - it is as simple as that.” 

Imogen Wilson
14 October 2025
accountantsdaily.com.au