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Lower company tax rate changes
March 2018

2016–17 income year

For the 2016–17 income year, the lower company tax rate decreased to 27.5%. Companies are eligible for this rate if they are a small business that:

  • has a turnover less than $10 million, and
  • operates a business for all or part of the income year. See Draft Taxation Ruling 2017/D7 for what it means for a company to be ‘carrying on a business’.

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies – in line with the company tax rate.

2017–18 income year

From the 2017–18 income year, a base rate entity is eligible for the lower 27.5% company tax rate. However, you still need to be a small business to be eligible for other small business tax concessions.

A base rate entity is a company that:

  • has a turnover less than the turnover threshold – which is $25 million (increased from $10 million) for the 2017–18 income year, and
  • operates a business for all or part of the income year – See Draft Taxation Ruling 2017/D7 for what it means for a company to be ‘carrying on a business’.

To work out the rate you use when franking your distributions you need to assume your aggregated turnover will be the same as the previous income year.

The lower 27.5% company tax rate will progressively apply to base rate entities with a turnover less than $50 million by the 2018–19 income year. From 2024–25, the lower company tax rate will reduce each year until it is 25% by 2026–27.

Note:

  • A Bill was tabled on 18 October 2017 proposing to change the definition of a base rate entity from the 2017–18 income year. Under the proposed law, the carrying on a business test will be replaced with an 80% passive income test.
  • A Bill was tabled on 11 May 2017 to gradually extend the lower company tax rate to all companies.

 

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