The company tax rate for small business entities was reduced to 27.5% for the 2016/17 and later income years.
The new legislation will also increase access to the reduced company tax rate by progressively including more companies over the next two income years. In the current financial year 2017/18, companies with aggregated turnover of $20M or less will pay tax at 27.5%. Companies with aggregated turnover of $50m or less will have the reduced rate from 2018/19. Aggregated turnover is defined as including all connected entities and affiliates, reduced by any intra-company transactions.
In the administrative treatment, the ATO has confirmed that carrying on a business will be finalised in TR 2017/D7 to include small business entities. Companies which have the intention of making a profit are considered to be carrying on a business.
Legislation introduced in October 2017 will change access to these corporate tax cuts. Pending approval, from the 2017/18 income year these tax cuts will apply to companies who are considered a base rate entity. A base rate entity is a company who has less than 80% of assessable income from passive sources.
Ultimately, the company tax rate for entities below $50m in turnover will be reduced to 25% starting from the 2026/27 income year.
For further information please contact your RCB Advisors team member.
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