Company Income Tax Rates
The general company income tax rate is 30%.
Small businesses 2016-17 tax rate is 27.5%
Arising from the 2016-17 budget (see more below), the small business company tax rate is reduced to 27.5% from 1 July 2016, along with an increase in the qualifying turnover ceiling to $10 million.
From 1 July 2017 this ceiling is again lifted to $25 million.
Passive investment companies 80% passive income test from 2017-18
To be a Small Business Entity eligible for the tax rate reduction from 30% to the current 27.5%, a company must be carrying on business in its own right. The company tax return forms require specific SBE confirmation (tick the box ) in order for the lower tax rate to be applied.
From 1 July 2017, companies eligible for the lower tax rate must be Base Rate companies, the definition of which requires the carrying on of a business. Draft Tax Ruling TR 2017/D7 provides ATO commentary and clarification of when a company is considered to be carrying on a business.
In order to further clarify eligibility, the Government has confirmed that passive investment companies were never intended to be eligible for the tax rate reduction, and has introduced legislation which sets out an 80% test to support this policy intention.
The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 is designed to ensure that a corporate tax entity will not qualify for the lower corporate tax rate if more than 80% of its assessable income is income of a passive nature. The carrying on a business test is replaced with a passive income test, under which companies that are generating predominantly (i.e. 80% or more) passive income will not be eligible for the lower corporate tax rate.
Passive income is defined to include dividends, interest, royalties and capital gains. See more here (with examples).
The amendments are to apply from 1 July 2017 for the 2017-18 year onwards. The ATO has advised that for the 2016-17 year companies will not be selected for audit based on their determination of whether they were carrying on a business in the 2016-17 income year, unless their decision is plainly unreasonable .