Eligibility for the lower company tax rate

As part of the Government’s Enterprise Tax Plan, the corporate tax rate for small corporate tax entities has been cut to 27.5 per cent. The turnover threshold that applies for a corporate tax entity to qualify for the lower corporate tax rate will increase annually from $10 million in the 2016-17 income year to $50 million in the 2018-19 income year. The Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 currently before Parliament would see this threshold increase progressively to $1 billion in 2022-23 before being removed in 2023-24.

The Bill amends the Income Tax Rates Act 1986 to ensure that a corporate tax entity will qualify for the lower corporate tax rate during this period only if:

• the corporate tax entity carries on a business in the income year;
• the aggregated turnover of the corporate tax entity for the income year is less than the aggregated turnover threshold for that income year; and
• the corporate tax entity does not have passive income for that income year of 80 per cent or more of its assessable income for that income year.

The Bill clarifies that corporate tax entities with predominantly passive income cannot access the lower corporate tax rate before 2023-24 when the tax rate should be 27.5 per cent for all companies.