Lower company tax rates

July 5, 2022

Some changes are coming.

Company tax rate changes, that is. Company tax applies to all companies, corporate unit trusts and public trading trusts and the full tax rate is 30% with the lower rate, if you are eligible, previously sitting at 27.5%.

This lower tax rate is changing to 26% for the 2020/21 year and to 25% the following 2021/22 tax year. 

Eligibility to be at this lower tax rate is determined by whether you are a base rate entity. To put it simply, a base rate entity is a company that both

  •  has an aggregated turnover less than the thresholds of $25 million in the 2017-18 financial year or $50 million from the 2018-19 and onwards years, and
  • 80% or less of all assessable income is passive. 

You may be wondering what determines passive income, and there is a list as follows. If you’re uncertain as to whether your business might be a base rate entity, then we do encourage you to get in touch with us at Prosperity Accountants, as we can swiftly determine where you stand, to ensure that you are paying the right company tax rate.

Passive income is defined as:

  • Royalties and rent
  • Gains on qualifying securities
  • Corporate distributions
  • Franking credits on these distributions
  • Interest income (with exceptions)
  • A net capital gain

Let it be known that these differ from the 2015/16 and 2016/17 years, so do not get complacent thinking you understand your situation.

Therefore, if you are eligible for this lower tax rate being a base rate entity, then you will see some changes come to the end of this financial year 2020/21. The previous years, where you have been paying 27.5% in company tax, will no longer apply; instead, you will be expected to pay 26% company tax.

In the next financial year of 2021/22, assuming that you are still deemed a base rate entity with an aggregated turnover below the $50 million threshold, you will be expected to pay 25% company tax. 

These welcome changes are a sigh of relief for many and just one of the proactive changes that the ATO is implementing to support smaller businesses during these less specific business periods. 

It is imperative that individuals remain employed and, therefore, that businesses continue to stay open for the health of the economy. By working with accountants and financial advisors who have your best interests in focus, you can not only survive, but begin to thrive again as you take control of your future. 

Contact us today on 08 9443 5199 or fill out our contact form.