Are you eligible to access the lower company tax rate?
4 December, 2022

Are you eligible to access the lower company tax rate?

Companies are subject to a tax rate of 30% on their taxable income, except for certain companies to which reduced tax rate of 25% applies from the financial year ending 30 June 2022. To be able to access a lower tax rate, a company must be a ‘Base Rate Entity’ (BRE).

A company’s BRE status can change year on year and so, you should determine if your company is a BRE for each income year. 

The main purpose of the BRE provision is to ensure that ‘passive investment companies’ cannot access the lower tax rate in an income year; instead, they will be taxed at 30 percent.

What is a Base Rate Entity?
A company is a BRE if it satisfies two requirements:

  • No more than 80 per cent of its assessable income is ‘base rate entity passive income’; and
  • Its aggregated turnover is less than the turnover threshold for the income year.

What is Base rate entity passive income?
Base rate entity passive income is any of the following:

  • Distributions by other corporate tax entities (excluding non-portfolio dividends)
  • Franking credits attached to above distributions
  • Non-share dividends
  • Interest or payments in the nature of interest
  • Royalties
  • Rent
  • Gains on qualifying securities
  • Net capital gains
  • Share of income in a partnership or net income of a trust that is referable to one of the above types of income

What happens if a company does not satisfy BRE?
Most companies will meet the base rate entity criteria and as such the lower tax rates will apply however, for companies that do not meet the criteria for a base rate entity, the full company tax rate of 30% applies.

What will be the maximum franking credit?
For dividend imputation, the maximum franking credit that can be attached to a frankable distribution paid by a company is based on its “corporate tax rate for imputation purposes”.

If you are a base rate entity, your “corporate tax rate for imputation purposes” is 25% from income year ending 30 June 2022.

Get in touch with us today if you are in doubt as to what rate of tax or franking credit rates apply to your company.

Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.

Please contact us for advice specific to you and your circumstances.

About the Author

Bibek Nepal

Director & Consultant

Bibek is passionate about helping his clients to save their taxes, manage their finances and help them grow their wealth. He has extensive knowledge, experience, and skills in individual taxation, small business accounting, taxation, and advisory services. He is a qualified Chartered Accountant from overseas and a member of the CPA Australia. Learn more at www.linkedin.com/in/nepalb

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