As the tax filing season is approaching, you must be knowing that some changes have been introduced in March’21 in the company tax rate for the upcoming financial year. Your company might be eligible for a lower company tax rate even though the full company tax rate is 30%. We will understand in this article whether your company would be eligible for a lower company tax rate. But before that, first, we should know to whom the company tax rate applies. Well, the company tax rate applies to the following:
- Company 2.
- Corporate unit trusts 3.
- Public trading trusts
Eligibility for a lower company tax rate
If your company is a ‘Base rate entity’ then you may be eligible for a lower company tax rate which is as follows:
- Tax rate of 27.5% from 2017-2018 to 2019-2020 income years. 2.
- Company tax rate of 26% for 2020-2021 income years. 3.
- And company tax rate of 25% from 2021-2022 income years onwards.
You are also eligible for a lower tax rate if your company was a ‘small business entity’ for the income years 2015-2016 and 2016-2017.
Eligibility criteria for a company to become a ‘Base rate entity’
Your company needs to fulfil the following criteria to become a ‘Base rate entity’:
Your company should have an aggregate turnover of less than $25 million for the year 2017-2018 income year or $50 million from the 2018-2019 income year onwards.
In case your company has passive income, then that income should not exceed 80% of the assessable income of your company for tax purposes, this can have the following components:
- Corporate distribution and franking credits on these distributions, royalties, rent, interest income.
2.Gains on qualifying securities, a net capital gain, etc.
You should be aware that there are different tax rules for income years 2015-2016 and 2016-2017.
Eligibility criteria for a company to become a ‘small business entity’
The income year 2016-2017: For a company to be eligible as a ‘small business entity’ and get a lower tax rate of 27.5% the company should have an aggregated turnover of less than $10 million and carrying on a business for all or a part of the year.
The income year 2015-2016: If your company’s aggregated turnover was less than $2 million and carrying on business for all or a part of the year then you are eligible for a lower company tax rate of 28.5%.
The income year 2017-2018 and onwards: From the income year 2017-2018, your company needs to be a ‘Base rate entity’ for becoming eligible for a lower company tax rate.
What about Not-for-profit companies?
A not-for-profit company doesn’t pay tax on the first $416 of their taxable income. After that, the tax is shaded in at a rate of 55% of the excess over $416 until the tax on the company’s taxable income becomes equal to the company tax rate. After that, the not-for-profit is taxed on the company tax rate.
For 2016-2017 to 2019-2020, when a lower tax rate of 27.5% was there, the shade in limit for the not-for-profit companies has reduced to $831 if they are ‘Base rate entity’ or ‘small business entity’ in relevant years.