Company tax changes

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%.

The ATO has outlined 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:

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 will then reduce to 26% in the 2020–21 income year and 25% in the 2021–22 income year.

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 and $50 million from the 2018–19 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.
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 2019–20

$50m

27.5%

30.0%

2020–21

$50m

26.0%

30.0%

2021–22 and future years

$50m

25.0%

30.0%

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.

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.

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% from 2016–17 to 2019–20, the shade in limit for not-for-profit companies has been reduced to $831 if they are:

  • base rate entities from the 2017–18 to 2019–20 income years
  • small business entities for the 2016–17 income year.

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.

For the 2019–20 income year, your corporate tax rate for imputation purposes is 27.5% if either:

  • your aggregated turnover in the 2018–19 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%.

Increase in superannuation rates

Please remember that the superannuation guarantee percentage increases from 1 July.

Review the ATO’s schedule here »

JobKeeper comes to an end

The ATO has advised that the final JobKeeper payment will be processed in April 2021.

Enrolled businesses do not have to do anything when the program closes, although they will need to complete their final March monthly business declaration by 14 April 2021.

Also, once a business is no longer claiming JobKeeper Payments, it may start to be eligible to receive the JobMaker Hiring Credit for any additional employees that started employment on or after 7 October 2020.

Omnis Group are modern, forward-thinking Business Accountants in Perth, providing practical, proactive, real-world advice and support that goes beyond the basic preparation and lodgement of tax returns, to identify opportunities for improvement in your business. Contact us in Subiaco Perth on 08 9380 3555.

Source: ATO