Change to Company Tax Rate

The Government and ATO have yet again changed the rules as to when an entity will be required to apply the reduced corporate tax rate of 27.5% for the financial years ending 30 June 2017 and 30 June 2018.

For 30 June 2017 (i.e. 2016/17), the ATO has also released a draft ruling setting out that a company is likely to be carrying on a business where it is established and maintained to make a profit and invests its assets in gainful activities that have both a purpose and prospect of profit. This means that for 2017 only – Companies receiving passive income such as interest, dividends and rent will also be eligible for the lower tax rate. These companies may only be able to frank their dividends at 27.5%.

For 2017/18 and later years, the legislative amendments contained in the Bill will apply. A company will be entitled to the reduced corporate tax rate if its aggregated turnover is under the relevant threshold and no more than 80 percent of the company’s income is passive income. In broad terms, the passive income of a company will comprise dividends (and attached franking credits), interest, rent, royalties and net capital gains. Partnership and Trust distributions will maintain their character. Non-portfolio dividends – those received by a company holding at least 10% of the voting shares in the dividend paying company – are specifically excluded from passive income.

The table below sets out the Governments proposed changes to the Company tax rate and turnover eligibility criteria.

Relevant thresholds and tax rates
Income Year Aggregated Turnover Tax Rate (%)
2017/18 $25 million 27.5%
2018/19-2023/24 $50 million 27.5%
2024/25 $50 million 27.0%
2025/26 $50 million 26.0%
2026/27 $50 million 25.0%
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