Show download pdf controls
  • Changes to company tax rates

    There are changes to the company tax rates. The full company tax rate is 30% and lower company tax rates are available in some years. This page shows when to apply the lower rate and how to work out franking credits.

    On this page:

    Company tax rates

    Company tax rates apply to entities which include:

    • companies
    • corporate unit trusts
    • public trading trusts.

    The full company tax rate of 30% applies to all companies that are not eligible for the lower company tax rate. Eligibility for the lower company tax rate depends on whether you are a:

    Base rate entity company tax rate

    From the 2017–18 to 2019–20 income years, companies that are base rate entities must apply the lower 27.5% company tax rate. The rate reduced to 26% in the 2020–21 income year and then to 25% for the 2021–22 income year and future years.

    A base rate entity for an income year is a company if:

    • the company’s aggregated turnover for that income year is less than the aggregated turnover threshold for that income year, and
    • it has 80% or less of their assessable income in that income year that is base rate entity passive income – this replaces the requirement to be carrying on a business from the 2017–18 income year onwards.

    The aggregated turnover threshold for the 2017–18 income year is $25 million. For the 2018–19 income year or each subsequent income year, it is $50 million.

    The aggregated turnover from any prior income year is irrelevant when working out if a company is a base rate entity for any particular income year.

    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.
    Table: Progressive changes to the company tax rate

    Income year

    Aggregated turnover threshold

    Tax rate for base rate entities under the threshold

    Tax rate for all other companies

    2017–18

    $25m

    27.5%

    30.0%

    2018–19 to 2019–20

    $50m

    27.5%

    30.0%

    2020–21

    $50m

    26.0%

    30.0%

    2021–22 and future years

    $50m

    25.0%

    30.0%

     

    Example: base rate entity

    Happy Feet Pty Ltd is a company that sells socks online. Its owner, Lloyd Chan, wants to expand the business into running shoes as well. The capital he needs to expand the business is put into a term deposit while he negotiates with suppliers.

    In the 2020–21 income year, Happy Feet Pty Ltd has an aggregated turnover under the $50 million aggregated turnover threshold. Its assessable income is $104,000, comprising:

    • $100,000 trading income from running the business
    • $4,000 of interest income.

    The interest income is base rate entity passive income. Because this income is only 3.8% of its assessable income, Happy Feet Pty Ltd is a base rate entity for the 2020–21 income year and the 26% company tax rate applies.

    End of example

    Example: base rate entity

    Coffee and Cake Pty Ltd is the owner of a small cafe. It is also the beneficiary of a trust which owns the premises from which the cafe operates and the premises next door. Above the cafe, there is a large studio space which the trust rents out to a very successful yoga school. Next door is rented to a high-end retail store. All rental income earned by the trust is distributed to Coffee and Cake Pty Ltd.

    In the 2020–21 income year, Coffee and Cake Pty Ltd has an aggregated turnover under the $50 million aggregated turnover threshold. Its assessable income is $700,000, comprising:

    • $500,000 of trading income from running the business
    • $200,000 of gross rental income attributable to the trust distribution.

    The rental income is base rate entity passive income. Because this income is only 28.6% of its assessable income, Coffee and Cake Pty Ltd is a base rate entity for the 2020–21 income year and the 26% company tax rate applies.

    End of example

     

    Example: not a base rate entity because passive income is too high

    Best Equity Ltd is a listed investment company which invests in Australian shares.

    In the 2020–21 income year, Best Equity Pty Ltd has an aggregated turnover under the $50 million aggregated turnover threshold. Its assessable income is $5 million, comprising:

    • $1 million of interest income
    • $4 million in dividends.

    100% of Best Equity Ltd's assessable income is base rate entity passive income. As a result, they are not a base rate entity for the 2020–21 income year and the 30% company tax rate applies.

    End of example

    For more information on base rate entities, see the Law Companion Ruling LCR 2019/5 Base rate entities and base rate entity passive income

    To work out your aggregated turnover, refer to Aggregation.

    Small business entity company tax rate

    You need to be a small business entity to be eligible for the lower company tax rate in the 2015–16 and 2016–17 income years. Refer to Work out if you're a small business for the income year.

    For the 2015–16 income year, the lower company tax rate was 28.5% for small business entities:

    • with an aggregated turnover of less than $2 million for the 2015–16 income year, and
    • carrying on a business for all or part of the year.

    For the 2016–17 income year, the lower company tax rate was 27.5%. This lower rate applies to small businesses that:

    • have an aggregated turnover less than $10 million for the 2016–17 income year, and
    • are carrying on a business for all or part of the year.

    For the 2017–18 income year and onwards, you need to be a base rate entity, rather than a small business entity to be eligible for the lower tax rate.

    For more information on when a company carries on a business, refer to the Taxation Ruling TR 2019/1 Income tax: when does a company carry on a business?

    Not-for-profit companies

    If you are a not-for-profit company, you don't pay tax on the first $416 of your taxable income. Tax is then shaded in at a rate of 55% of the excess over $416 until the tax on your taxable income effectively equals the company tax rate. You are then taxed at the company tax rate.

    If you are a base rate entity, the shade in limit for not-for-profit companies is:

    • $788 for the 2020–21 income year
    • $762 for the 2021–22 income year and later years.

    Maximum franking credits

    To work out the company tax rate for franking your distributions, otherwise referred to as 'corporate tax rate for imputation purposes', you need to assume your aggregated turnover, assessable income, and base rate entity passive income will be the same as the previous income year.

    If you are a base rate entity, your corporate tax rate for imputation purposes is 27.5% for the 2017–18 to the 2019–20 income years. It will be 26% for the 2020–21 income year and 25% for the 2021–22 income year. You are a base rate entity is either of the following apply:

    • your aggregated turnover in the previous income year was less than $50 million, and 80% or less of your assessable income was base rate entity passive income
    • the entity didn't exist in the previous income year.

    Otherwise, your corporate tax rate for imputation purposes is 30%.

    Last modified: 28 Oct 2021QC 54063