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Edited version of private advice
Authorisation Number: 1051610234033
Date of advice: 19 November 2019
Ruling
Subject: Company Tax Rate
Question
Is the company eligible to apply a tax rate of 27.5%?
Answer
No
This ruling applies for the following period:
Year ended 30 June 2020
The scheme commenced on:
1 July 2019
Relevant facts and circumstances
Company A is a small business with an annual income of approximately $X which is derived from the commercial rent of a building.
The company has engaged an agent to manage the properties and collect the rents.
The company has advised that it derives more than 80% of its income from rental activities.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 328-110
Income Tax Rate Act 1986 section 23AA
Income Tax Rate Act 1986 section 23AB
Reasons for decision
From the 2017-18 income year companies that are base rate entities must apply the lower 27.5% company tax rate.
A base rate entity is a company that both:
· has an aggregated turnover less than the aggregated turnover threshold - which is $25 million for the 2017-18 income year
· 80% or less of their assessable income is base rate entity passive income - this replaces the requirement to be carrying on a business.
Base rate entity passive income is:
· corporate distributions and franking credits on these distributions
· royalties and rent
· interest income (some exceptions apply)
· gains on qualifying securities
· a net capital gain
· an amount included in the assessable income of a partner in a partnership or a beneficiary of a trust, to the extent it is traceable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
The company satisfies the first requirement of the base rate entity test as the aggregated turnover is less than $25 million; however the company's primary source of income is rent. You have advised that the company's assessable income is produced from base rate entity passive income.
This income exceeds the 80% threshold; therefore as this requirement is not satisfied the company is not considered to be a base rate entity and is not eligible to apply the tax rate of 27.5%.