Company tax rate changes

Overview

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 following 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:

base rate entity from the 2017–18 income year
small business entity for the 2015–16 and 2016–17 income years.

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 ($25 million for 2018)
80% or less of their assessable income is passive income (replaces 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

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.

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 2017 income year was less than $25 million, and 80% or less of your assessable income was passive income
the entity didn’t exist in the previous income year.

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