Who gets the 27.5% Company tax rate?

You would think this is an easy question to ask… But it is not.

The rules seem pretty easy. They are:

  • A corporate tax entity carries on a business in the income year;
  • The aggregated turnover of the corporate tax entity for the income year is less than:
    • for the 2016-17 income year — $10 million;
    • for the 2017-18 income year — $25 million;
    • for the 2018-19 income year and following — $50 million.

But we now have arguments as to what is a “business” and what if the turnover is under the threshold but 99% of the income does not come from the business but from passive income?

Well the Government will make this clear by adding another condition to the above conditions. It is…

the corporate tax entity does not have base rate entity passive income for that income year of 80 per cent or more of its assessable income for that income year.

So if you are a company running a business this year with a turnover of $50,000 as long as $10,001 was from a business (20+%) the company will get the 27.5% rate, even though the remainder of the turnover comes from rent, interest…

But as that passive income could be dividends from listed companies with 30% imputation credits attached, we may not want the 27.5% rate, but prefer the 30% rate so we can pay out 30% dividends.

By Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.

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