These instructions will help you complete the Company tax return 2016 (NAT 0656), the tax return for all companies, including head companies of consolidated and MEC groups.
These instructions contain a number of abbreviations for names and technical terms. Each term is spelt out the first time it is used. See Abbreviations for more information.
Small business company tax rate
The small business company tax rate has been reduced from 30% to 28.5% for income years commencing on, or after, 1 July 2015. This lower rate also applies to small businesses that are corporate unit trusts and public trading trusts. Complete the checkbox in the 'Status of Company' section of the return form if you are an eligible small business. For more information about eligibility, see Am I eligible for the small business entity concessions?
The company tax rate will remain at 30% for all other companies that are not small business entities.
Maximum franking credits
The maximum franking credit that can be allocated to a frankable distribution is unchanged at 30%, including small businesses eligible for the 28.5% tax rate. As small business companies now have a higher franking credit cap than their tax rate, they need to take care not to over-frank (that is, allocate more franking credits than are in the franking account when paying dividends). Doing so may result in you having to pay a franking deficit tax.
Substituted accounting periods
If you are a small business company with an early balancing substituted accounting period, the reduced company tax rate will not apply to 2015-16 because it commenced prior to 1 July 2015.
If you are a standard or late balancer, the reduced company tax rate will apply to your 2015-16 income year because it commenced on or after 1 July 2015.
As the small business company tax rate has been reduced to 28.5%, the shade-in limit for small business non-profit companies has been reduced to $863.
The rates of tax payable by small business non-profit companies are now:
Tax on taxable income
$0 - $416
$417 - $863
$864 and above
Medium credit unions
If you are a medium credit union, the tax payable (before any offsets or credits) is normally limited to 45% of the amount by which your taxable income exceeds $49,999. As the company tax rate has been reduced to 28.5% for small business entities, the 45% rate has been reduced to 42.75% for medium credit unions that are small business companies.
The company tax rate remains at 30% for all companies that are not small business entities. The company tax rate also remains unchanged for:
- retirement savings account providers
- authorised deposit-taking institutions
- pooled development funds
- life insurance companies.
Expanding accelerated depreciation for small businesses
New laws have passed allowing small businesses to claim an immediate deduction for assets they first acquire and start to use, or have installed ready for use, from 12 May 2015 provided each depreciable asset costs less than $20,000. This will temporarily replace the previous instant asset write-off threshold of $1,000.
This measure started 7.30pm (AEST) 12 May 2015 and will end on 30 June 2017.
The balance of the general small business pool is also immediately deductible if the balance is less than $20,000 at the end of an income year that ends on or after 12 May 2015 and on or before 30 June 2017 (including an existing general small business pool).
The 'lock out' laws have also been suspended for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they have opted out) until the end of 30 June 2017.
Immediate deductibility for start-up costs
Section 40-880 of the Income Tax Assessment Act 1997 (ITAA 1997) allows for certain start-up expenses, including costs associated with raising capital, to be immediately deductible where they are incurred by a small business entity or an entity that is not in business. These provisions apply from 2015–16 onwards.
Report of entity tax information
From December 2015, under the income tax transparency reporting requirements, the Commissioner of Taxation will publish an annual report of certain information about:
- public and foreign owned corporate tax entities with total income of $100 million or more, and
- Australian-owned resident private entities with total income of $200 million or more.
The information will be extracted from tax returns on 1 September in the year following the income year being reported and will be published around December. For example, information from the 2014-15 income year will be extracted on 1 September 2016 and published around December 2016. For more information, see Tax transparency.
Increasing access to company losses
On 7 December 2015, the government announced, as part of its National Innovation and Science agenda, that the current ‘same business test’ for company losses will be relaxed to allow businesses to access past year losses when they have entered into new transactions or business activities.
To give effect to this, a new ‘similar business test’ will be introduced. Under this test companies will be able to access losses where their business, while not the same, is similar having regard to:
- the extent to which the company generates assessable income from the same assets and sources, and
- whether any changes to the business are changes that would reasonably be expected to have been made to a similarly placed business.
This measure is expected to take effect from 1 July 2015. At the time of publishing, these changes had not become law. For more information, go to ato.gov.au/New-legislation