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  • Changes to company tax rates

    There are changes to the company tax rates. The full company tax rate is 30% and the lower company tax rate is 27.5%. This page shows when to apply the lower rate and how to work out franking credits.

    Company tax rates apply to:

    • 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:

    Find out about:

    See also:

    Base rate entity company tax rate

    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.

    See also:

    • Law Companion Ruling LCR 2018/D7 Base rate entities and base rate entity passive income  

    Example 1 – 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 2017–18 income year, Happy Feet Pty Ltd has an aggregated turnover under the $25 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 2017–18 income year and the 27.5% company tax rate applies.

    End of example

    Example 2 – 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 2017–18 income year, Coffee and Cake Pty Ltd has an aggregated turnover under the $25 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 2017–18 income year and the 27.5% company tax rate applies.

    End of example

    Example 3 – 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 2017–18 income year, Best Equity Pty Ltd has an aggregated turnover under the $25 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 2017–18 income year and the 30% company tax rate applies.

    End of example

    Future year company tax rates

    The lower company tax rate applies to base rate entities with an aggregated turnover less than $50 million from the 2018–19 income year. The rate will then reduce to 25% by the 2026–27 income year.

    Table 1: 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 2023–24

    $50m

    27.5%

    30.0%

    2024–25

    $50m

    27.0%

    30.0%

    2025–26

    $50m

    26.0%

    30.0%

    2026–27

    $50m

    25.0%

    30.0%

    See also:

    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.

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

    • have an aggregated turnover less than $10 million
    • are carrying on a business for all or part of the year.

    For the 2015–16 income year, the lower company tax rate was 28.5% for small business entities with an aggregated turnover less than $2 million, and carrying on a business for all or part of the year.

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

    See also:

    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.

    As the lower company tax rate is 27.5%, the shade in limit for not-for-profit companies has been reduced to $832 if they are:

    • base rate entities from the 2017–18 income year
    • small business entities for the 2016–17 income year.
    Table 2: Tax rates for the 2016–17 and 2017–18 income years for not-for-profit companies eligible for the lower company tax rate

    Taxable income

    Tax rate on taxable income

    $0–$416

    Nil

    $417–$832

    55%

    $833 and above

    27.5%

    See also:

    Maximum franking credits

    From the 2017–18 income year, 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.

    For the 2017–18 income year, your corporate tax rate for imputation purposes is 27.5% if either:

    • your aggregated turnover in the 2016–17 income year was less than $25 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%.

    See also:

    Distributions issued using incorrect tax rate

    You may have issued 2016–17 or 2017–18 distribution statements using the incorrect corporate tax rate for imputation purposes if:

    • based on Draft Taxation Ruling 2017/D7, you now consider you are carrying on a business and are a small business entity eligible for the lower company tax rate (2016–17 distributions)
    • more than 80% of your assessable income is base rate entity passive income, making you ineligible for the lower company tax rate (2017–18 distributions).

    If you believe you have issued your 2016–17 or 2017–18 distributions based on the incorrect corporate tax rate for imputation purposes, you should notify your shareholders of the correct dividend and franking credit amounts. You can do this by sending a letter or email to your shareholders, or a revised distribution statement. You also need to ensure the correct amounts are reflected in your franking account.

    See also:

    Previous years

    For the 2015–16 and previous income years, the maximum franking credit that can be allocated to a frankable distribution for all companies was 30%. This included small business entities, even though their company tax rate was 28.5%.

    See also:

    Last modified: 03 Sep 2018QC 54063