August 8, 2017
Parliament has recently enacted the Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023–2024 income year.
Importantly, for companies to be eligible to access the reduced 27.5% corporate tax rate between the 2018 to 2023 income years, the taxpayer must carry on a business in the relevant income year and have aggregated turnover thresholds (i.e. the sum of the turnovers of the taxpayer, the taxpayer’s connected entities and affiliates) less than the following:
- for the 2017–2018 income year, $25 million;
- for the 2018–2019 income year, $50 million;
- for the 2019–2020 income year, $100 million;
- for the 2020–2021 income year. $250 million;
- for the 2021–2022 income year, $500 million; and
- for the 2022–2023 income year, $1 billion; and
- for the 2023–2024 income year, all corporate entities.
Under the changes, the reduced corporate tax rate will be available to all corporate entities from the 2024 income year onwards, and will be further reduced as follows:
- for the 2024–2025 income year, 27.0%;
- for the 2025–2026 income year, 26.0%;
- for the 2026–2027 income year, 25.0%;
As a result of the above changes, the maximum franking credit that can be allocated to a distribution by a company subject to a reduced tax rate will be accordingly reduced.
The above changes offer welcome relief to Australian businesses. The relevant rules however in determining aggregated turnover and the franking implications may be complex. There may further be tax planning opportunities where businesses are currently run within non-corporate entities (e.g. trust structures) that cannot benefit from the above reduced tax rates. We recommend seeking professional advice if you think your business may be affected or can benefit from the above changes.