Companies that are residents of Australia are subject to Australian tax laws on their global income.  According to the ATO, the full company tax rate is 30% with lower rates applying in certain circumstances.

Which entities are subject of this tax rate:

• Companies
• Corporate unit trusts
• Public trading trust

The full rate of 30% is applicable unless the entity was:

• a Base Rate Entity for FY 2017-18 onwards;
• a Small Business for FY 2015-16 & 2016-17.

Base Rate Entity

The ATO has progressively decreased the tax rate applicable to Base Rate Entities from 27% in FY 2017-18 to now 25%.

An entity is a Base Rate Entity if:

• its aggregated turnover is less than the aggregated turnover threshold announced for that income year.

ATO has been progressively increasing the Aggregate turnover amount. Aggregate turnover threshold for FY 2021-22 and onwards is $50,000,000.

To work your aggregated turnover, head to ATO:    https://www.ato.gov.au/business/small-business-entity-concessions/eligibility/aggregation/  

• Base Rate Entity Passive Income accounted for 80% or less of your aggregated turnover. Carrying on a business test is replaced by this test.

What constitutes Base Rate Entity Passive Income:

• 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.

There are a range of deductions, rebates, offsets or concessions that your company may be eligible to. We will discuss them in future notes.

This short note does not constitute legal, financial or accounting advice and should not be relied as such. For legal advice, contact us on 02 8014 5818.