SME Communicator - July 2011

Gross domestic product adjustment for 2011-12 income year

The government has introduced legislation to reduce the gross domestic product (GDP) adjustment factor for pay as you go (PAYG) instalment taxpayers who use the GDP adjustment method. This method bases instalment amounts on business and investment income from the latest income tax return, uplifted by a GDP adjustment factor to reflect likely income growth.

Under existing law the GDP uplift factor for the 2011-12 year would have been 8%.

The government's new legislation will reduce the uplift factor to 4% for the 2011-12 income year. This provides a significant cash flow benefit to businesses and investors. It also smoothes the transition from the 2% GDP adjustment that has applied for the last two years as the economy recovered from the global financial crisis.

Most small businesses and small superannuation funds use the GDP adjustment method when calculating their instalment amounts. The GDP uplift factor does not apply to taxpayers who use the 'rate' method - where the taxpayer calculates their own instalment based on their actual income.

For eligible goods and services tax (GST) payers, the GDP adjustment factor that will apply in the 2011-12 income year will also be 4%.

For more on the GDP uplift factor, visit PAYG instalment essentials.