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ATO – lower company tax rate

From the 2021–22 income year, companies that are base rate entities must apply the 25% company tax rate. The rate was previously 27.5% from the 2017–18 to 2019–20 income years and 26% in the 2020–21 income year.

For your company to be a ‘base rate entity’, it needs to meet the following eligibility criteria:

  • Your aggregated turnover for the income year is less than the aggregated turnover threshold (which is $50 million from the 2018–19 income year onwards, or $25 million for the 2017–18 income year).
  • If your company earns passive income, it cannot exceed 80% of the company’s assessable income in that income year. Passive income can include: corporate distributions and their franking credits; royalties and rent; most income from interest; gains on qualifying securities; and a net capital gain.

The full company tax rate of 30% applies to all companies that are not eligible for this lower company tax rate. The rates are different for previous years and different rules apply.

The aggregated turnover from any prior income year is irrelevant when working out if a company is a base rate entity for any particular income year.

Base rate entity passive income is:

  • corporate distributions and franking credits on these distributions
  • royalties and rent
  • interest income (some exceptions apply)
  • gains on qualifying securities
  • a net capital gain
  • an amount included in the assessable income of a partner in a partnership or a beneficiary of a trust, to the extent it is traceable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
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