The company tax rate reduction is designed to benefit small businesses “carrying on a business”. Recent media attention has created some confusion over who is entitled to the reduced rate.
The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 allows corporate tax entities to be treated as a Small Business Entity for the purpose of accessing the reduced tax rate provided assessable income does not include 80% or more from passive investments.
Passive investment income includes:
- Dividend Income (other than non-portfolio dividends – where the entity holds at least 10% of the voting power & interest)
- Rental Income
- Capital Gain
- Interest Income
- Partnership & Trust Distributions (to the extent that it is attributable to an amount that is passive income)
If the Company receives a distribution or dividend from a related business, operated via a trust or partnership structure, it may meet the criteria of a Small Business Entity and be taxed at 27.5% for the 2018 Income Tax Year.
If you are not sure if your investment company is carrying on a business, please contact us to discuss your circumstances.