Company Income Tax Rates

Small business company tax rate 2017-18 is 27.5%

The 27.5% rates applies through 2019-20.

The general company income tax rate is 30%.

Tax rates for small business companies with aggregated turnover below $50 million are being progressively lowered to 25% by the 2021-22 year.

Arising from the 2016-17 budget (see more below), the small business company tax rate was reduced to 27.5% from 1 July 2016 (for the 2016-17 year) along with an increase in the qualifying turnover ceiling to $10 million.

The ceiling moved to $25 million from 1 July 2017, and to $50 million from 1 July 2018.

From 1 July 2017 a passive income test was introduced as described below.

Investment companies – subject to 80% passive income test from 2017-18

To be a Small Business Entity eligible for the initial tax rate reduction from 30% to 27.5%, a company must be carrying on business in its own right. The company tax return forms require specific SBE confirmation in order for the lower tax rate to be applied.

Ruling TR 2019/1 provides ATO commentary and clarification of when a company is considered to be “carrying on a business”.

Commencing from 1 July 2017, companies eligible for the lower tax rate must be “Base Rate” companies.

In order to further define the scope of eligibility, the Government confirmed that passive investment companies were never intended to be eligible for the tax rate reduction, and subsequently passed legislation (see below) which sets out an “80% test” to support this policy intention, included in the definitions of “Base Rate Entity” and  “Base rate entity passive income“.

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2018 (now law) provides a “bright line” test for corporate tax entities to qualify for the lower corporate tax rate.  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 (less than 30%) corporate tax rate.

What is passive income?

Base rate entity passive income (“passive income”) is defined generally to include dividends, interest, royalties and capital gains.

Non portfolio dividends paid to a holding company (a minimum 10% equity requirement) are not treated as passive income.

Company income derived through a trust or partnership only has passive income to the extent that the income is referable to passive income of the underlying trust or partnership. See more here (with examples) and LCR 2018/D7

Amendments to the Bill further clarify that the interest income of various kinds of registered financial services entities is excluded from the passive income definition.

See also:

The amendments are to apply from 1 July 2017 for the 2017-18 year onwards. As a practical measure, 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”.

New law (from 1 July 2017)Law until 30 June 2017
A corporate tax entity will qualify for the lower corporate tax rate for an income year only if:A corporate tax entity will qualify for the lower corporate tax rate for an income year only if:
  • no more than 80% of the corporate tax entity’s assessable income for that income year is base rate entity passive income; and
  • the aggregated turnover of the corporate tax entity for the income year is less than the aggregated turnover threshold for that income year.
  • the corporate tax entity carries on a business in the income year; and
  • the aggregated turnover of the corporate tax entity for the income year is less than the aggregated turnover threshold for that income year.
Source: Explanatory Memorandum

 

2015-16 tax rate – small business entities – 28.5%

Announced as part of the Federal Budget 2015 and now law, from 1 July 2015 the tax rate for Small Business companies was reduced to 28.5%. Before 1 July 2016, Small Businesses Entities were those with aggregated turnover (i.e. grouped with related entities) of less than $2 million.

 

Company tax cuts from 2016-17

budget-2016_17 The 2016 Budget contained proposals for reducing company tax rates.

Initial amendments brought to parliament were to have extended rate reductions progressively to all companies. Through negotiation in order to secure passage of the legislation, this was modified to limit the tax rate reductions to “base rate” companies, progressively extending from small business entities to entities with aggregated turnover of less than $50 million.

The consequence of this limitation is that the corporate tax rate for entities with an aggregated turnover of $50 million or more remained at 30%.

The Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 has been passed by the parliament, and operates from 1 July 2016.

In addition to the modified 2016-17 budget reductions which have already passed through parliament (see below), government policy was to further reduce the corporate tax rate for all companies to reach 25% by 2026-27. However following defeat of the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 in parliament the Bill was abandoned.

**In October 2018 the Government announced that the scheduled introduction of the 25% rate would be brought forward to land in the 2021-22 year.  This latest tax reduction schedule is now law and reflected in the final column of the table below.**

For details of the amending law see Treasury Laws Amendment (Lower Taxes for Small and Medium Businesses) Bill 2018. See also: New Bill to accelerate tax cuts for small and medium sized businesses

Small Business Company Tax Rates Schedule

Tax_YearAggregated Turnover ThresholdPrevious tax rates** Current rates
2014-15 and earlier *n/a30%30%
2015-16$2 million28.5%28.5%
2016-17$10 million27.5%27.5%
2017-18$25 million27.5%27.5%
2018-19$50 million27.5%27.5%
2019-20$50 million27.5%27.5%
2020-21$50 million27.5%>26%
2021-22$50 million27.5%>25%
2022-23$50 million27.5%>25%
2023-24$50 million27.5%>25%
2024-25$50 million27%>25%
2025-26$50 million26%>25%
2026-27$50 million25%>25%

* Historical company tax rates, and for other entity types, can be found here.

What is aggregated turnover?

Aggregated turnover of an entity is a term which is defined to include the annual turnover of an entity for an income year, and to which is added the turnovers of any entity which is “connected” or “affiliated” at any time during the year, for the period they were connected or affiliated.

“Turnover” refers generally to ordinary income.

Definitions:

Aggregated turnoverSection 328.115
Annual TurnoverSection 328.120
Connected EntitySection 328.125
Affiliated Entity Section 328.130

See further information: Aggregation

Similar Business Test – and Self-assessment of  intangibles useful life

Similar Business Test

The Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 gives effect to a modification of the same business test, (which qualifies the applied to the deductibility of prior-year company losses), by replacing it with a ‘similar business’ test.

The new rules apply to losses incurred from 1 July 2015.

In determining whether a current business is sufficiently similar to a previous business, regard will be had (not exhaustively) to:

  • the extent of continued use of the same assets (including goodwill)
  • the extent of continuity of activities and operations
  • business identity
  • the extent of business changes more generally

For a fuller explanation of the effects and application of these measures – see

Intangibles: Self-assessment of useful life

The Treasury Laws Amendment (2017 Enterprise Incentives No. 1) Bill 2017 also contains an amendment to section 40-95(7) to enable a self-assessment of effective life for amortisation of certain intangible assets (for assets held after 30 June 2016) rather than the existing statutory effective life currently specified.  See more here

Guidance – Multinational Anti-Avoidance, Transfer Pricing and Tax Residency

The Tax Office has issued the following guidance documents:

PCG 2018/9
Central management and control test of residency: identifying where a company’s central management and control is located

TD 2018/12 Income tax: schemes that limit a taxable presence in Australia under section 177DA of the Income Tax Assessment Act 1936 – meaning of ‘directly in connection with’.

PCG 2017/1 ATO compliance approach to transfer pricing issues related to centralised operating models involving procurement, marketing, sales and distribution functions.

TR 2018/5 Income tax: central management and control test of residency.

PCG 2018/D3 Income tax: central management and control test of residency: identifying where a company’s central management and control is located

See also: Technical Update: ATO’s final view on tax residency of foreign companies

Draft Taxation Ruling TR 2019/D2 Income tax: thin capitalisation – the arm’s length debt test

Draft Taxation Determination TD 2019/D9 Exclusion of debts forgiven for reasons of natural love and affection require that the creditor is a natural person

Treatment of franking credits

The laws previously provided for the retention of a universal maximum franking rate of 30%. After the tax rate reduction, the maximum franking rate is to be 27.5% or 30% if aggregated turnover for the previous income year is equal to or exceeds the current year threshold.

In practice the extent of franking is limited by the franking account balance, and companies in due course will have lower tax credits based on the lower tax rates. Practical Compliance Guideline (draft) PCG 2017/D7 provides guidance for small businesses over-franking in 2016-17 income year because of tax rate change. See also

Guidance documents – company tax rates issues

Due to the changes surrounding the taxation of companies the Tax Office has released guidance documents.

Unincorporated businesses

Also announced in the 2015 budget was a tax discount of 5% up to a maximum of $1,000 applied as a tax offset for individuals with income from an unincorporated Small Business. This measure is now law, and has been subsequently revised with more generous offsets applying from 1 July 2016 – see Small Business Tax Offset

See also: Small Business Concessions

Other entities tax rates:

  • Life Insurance companies – ordinary: 30%
  • Complying superannuation funds: 15%
  •  Non-profit bodies are exempt from tax on their mutual income. Non-exempt bodies are taxable on their non-mutual net income at the following rates for 2016-17 and 2017-18:
Non-mutual Income Tax
 First $416 of taxable income Nil
 $417 to $831 55%
 $832 and above 27.5%

 

  • The tax rate for a Public unit trust is also 30%.
  • For Fringe Benefits Tax rates – see  FBT

Exploration Development Incentive scheme

The Exploration Development Incentive (EDI) enables exploration companies to apply exploration tax losses towards tax credits for shareholders. Australian resident shareholders that are issued with an exploration credit are entitled to a refundable tax offset or additional franking credits.

Eligible companies must notify the Tax Office of estimated eligible exploration expenditure by 30 September.

For further information from the Tax Office, see:

Replacement Exploration Incentive Scheme from 1 July 2017

The government has introduced a new (replacement) exploration tax incentive scheme to apply from 1 July 2017. See legislation details: Treasury Laws Amendment (Junior Minerals Exploration Incentive) Bill 2017

Due to the late passage of the enabling legislation, amendments were included to extend application period for 2017-18 year to 15 May 2018.

The Junior Minerals Exploration Incentive (JMEI) is to provide a tax incentive to invest in small minerals exploration companies undertaking greenfields minerals exploration in Australia. Australian resident investors of these companies receive a tax incentive where the companies choose to give up a portion of their tax losses relating to their exploration expenditure in an income year.

Key points:

  • eligibility for the incentive is limited to investors that purchase newly issued shares
  • the incentive is allocated between eligible exploration companies on a first come, first served process
  • the total value of the tax incentives available is
    • $15 million for 2017-18
    • $25 million for 2018-19
    • $30 million for 2019-20
    • $30 million for 2020-21, plus any unallocated amounts from previous years
  • credits available per entity are limited to 5% of the total amount available for each year.

See further: Junior Minerals Exploration Incentive now open

Company tax loss carry-back scheme..

Legislative amendments to remove the carry-back availability from 2013-14 were included with the Mining Tax repeal measures and took effect from 30 September 2014. See MRRT Repeal Measures Bill.

The ATO provided for a “no-penalty” administrative treatment for companies which may have already claimed for 2013-14 in accordance with the then-existing law. Tax assessments are automatically adjusted by the Tax Office to reflect the repeal.

Large Companies tax instalments

From 1 January 2014 corporate tax entities are required to make PAYG income tax instalments monthly rather than quarterly if they are over the specified turnover thresholds. These changes were foreshadowed in the Treasurer’s 2012 MYEFO.

  • Companies with turnover of $1 billion or more
    will remit their PAYG company tax instalments monthly from 1 January 2014.
  • Companies with turnover of $100 million
    will commence monthly payments  on 1 January 2015.
  • Companies with turnover of $20 million or more
    will commence monthly payments  on 1 January 2016.

These proposals will also impact all other entities including super funds, trusts and individuals:

  • Entities with turnover of $1 billion or more
    will commence monthly payments  on 1 January 2016.
  • Entities with turnover of $20 million or more
    will commence monthly payments  on 1 January 2017.

For further information: See Monthly PAYG instalments


See also

Further information

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This page was last modified 2019-12-11