On 23 August 2018, the Treasury Laws Amendment Bill 2017 (Enterprise Tax Plan Base Rate Entities) was passed; providing clarity on which companies are eligible for the lower company tax rate.
To be eligible for the lower tax rates in 2017-18 financial year, the company must have aggregate turnover of less than $25 million (2018-19 $50 million) and also satisfy the ‘base rate entity passive income’ test.
Under this test, companies which receive passive income making up more than 80% of their total income for the year will not be eligible for the lower company tax rate of 27.5%; instead their rate is 30%.
Passive income has been defined to include the following:
- dividends other than non-portfolio dividends
- franking credits on such dividends
- non-share dividends
- interest income (some exceptions apply)
- royalties and rent
- gains on qualifying securities
- net capital gains
- income from trusts or partnerships, to the extent it is referable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
The flow-on effect of the eligibility of the small business tax rates also impacts a company’s ability to frank dividends and the level of franking credits which can be attached to the dividend.
Should you wish to understand the new tax rates and tests further as well as how it will impact your business, we encourage you to reach out to your advisor here at Quantum Partners.
