Recently we have seen a number of key developments in relation to company tax rates.
It has been confirmed that the Government will no longer extend the company tax cuts to larger companies. This means that only those companies which have aggregated turnover of up to $50 million potentially will be eligible for a tax rate other than 30 per cent. This will come into effect from the 2017-18 financial year.
2017–18 corporate tax rate
Companies should prepare their 2017–18 income tax returns under the new law. To qualify for the lower 27.5% tax rate in the 2017–18 income year, a company must meet the new base rate entity definition which requires them to:
- have an aggregated turnover of less than $25 million, and
- have no more than 80% of their assessable income as base rate entity passive income.
Under this new law, there is no longer a requirement that the company be ‘carrying on a business’ to access the lower corporate tax rate for the 2017-18 and later income years.
If companies have already lodged their 2017–18 company tax returns based on the previous law, they should review their position and lodge an amendment if required.
Base rate entity passive income includes:
- dividends other than non-portfolio dividends (non-portfolio dividends defined broadly as dividends on shares with a voting interest in the company of at least 10 per cent)
- franking credits on such dividends
- non-share dividends
- interest income (some exceptions apply)
- royalties and rent
- gains on qualifying securities
- net capital gains
- Certain amounts that flow through a partnership or a trust to the extent that it is attributable to an amount that is base rate entity passive income of the partnership or trust.
The Commissioner adopts a narrow interpretation of `rent’ for the purposes of these rules, indicating that it will take its ordinary meaning as consideration payable by a tenant to a landlord for the exclusive possession and use of land or premises.
Importantly, there is no choice to opt in or out of a lower company tax rate. Application of the lower rate is based entirely on meeting the relevant eligibility criteria.
Table below summarises the applicable turnover thresholds and corporate tax rates as currently enacted.
|Progressive changes to the company tax rate|
|Income year||Aggregated turnover threshold||Tax rate for base rate entities under the threshold||Tax rate for all other companies|
|2018–19 to 2023–24||$50m||27.5%||30.0%|