Reduced Company Tax Rates

15 Dec 2017

Companies carrying on small businesses with turnover of less than $10 million had a reduced tax rate of 27.5% for the 2016-2017 income year.  The turnover thresholds are set to increase annually: for the current income year up to $25 million, and next income year up to $50 million.

The Government has just introduced a Bill clarifying that passive investment companies do not qualify for the reduced tax rate due to the uncertainty around where an investment company is considered to be carrying on a business.

A company will only qualify for the reduced company tax rate if:

• no more than 80 per cent of the company’s assessable income for that income year is passive income; and
• the aggregated turnover of the corporate tax entity for the income year is less than the turnover threshold for that income year.

If the second phase of the Government’s Enterprise Tax Plan is passed, the turnover threshold will increase annually until it reaches $1 billion in the 2022-2023 income year then, in 2023-2024 income year the corporate tax rate will be 27.5% for all entities.

The Government then plans to progressively lower the corporate tax rate until it reaches 25%.