Lower Company Tax Rates

More companies can now utilise the lower company tax rates introduced in 2016-17.

 2016–17 income year

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

a) has a turnover less than $10 million, and

b) operates a business for all or part of the income year

The maximum franking credit that can be allocated to a frankable distribution has also been reduced to 27.5% for these companies.

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

a)  has a turnover less than the turnover threshold – which is $25 million (increased from $10 million) for the 2017–18 income year, and

b)  operates a business for all or part of the 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.

There are also proposed bills related to company tax rates:

1)  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.

2) A Bill was tabled on 11 May 2017 to gradually extend the lower company tax rate to all companies.