Company tax change in limbo

July 2018

Company tax cuts have yet to pass Parliament, leaving business owners with the uncertainty of when (or if) they will benefit from lower tax rates.

The Australian Government introduced legislation to reduce the company tax rate in October 2017, however as they are yet to pass through Parliament, businesses and investors will need to continue to apply the existing provisions for determining company tax rates and maximum franking rates - and deal with the uncertainty that that might change.

Under current rules, a company would be subject to a 27.5% tax rate if it carries on a business (which could include investment activities as long as there is a genuine expectation of making a profit) and the aggregated turnover of the company and certain related parties is less than $25m.

If the Bill passes in its current form then the tax rate and maximum franking rate position will depend on whether more than 80% of the company's income is passive in nature (e.g., interest, rent etc.).

If more than 80% of the company's income is passive in nature, then a 30% tax rate should apply. The $25m aggregated turnover test will also need to be applied.

While the Government was successful at passing a significant portion of its tax cut package for individuals with the support of the Senate, it has yet to have the same success for company tax rates.

For more information about how this could affect your business, please contact us on 02 9957 4033.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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