March 6, 2018
The Federal Government has recently introduced a Bill into Parliament to ensure that companies with more than 80% passive income, will not qualify for the reduced 27.5% company tax rate otherwise available to companies that carry on a business and have an aggregated turnover below the prescribed relevant threshold ($25 million for 2017–2018).
Under the Bill’s changes to the Income Tax Rates Act 1986, calculations of a business’s “passive income” would include:
- distributions by corporate tax entities (other than non-portfolio dividends);
- franking credits attached to such distributions;
- non-share dividends;
- gain on qualifying securities;
- net capital gains; and
amounts included in the assessable income of partners in a partnership or beneficiaries of a trust estate that are referable to another base rate entity passive income amount.
An amount that flows through a trust to a corporate tax entity (ie directly from the trust to the corporate tax entity) will retain its character for the purposes of determining whether the amount is passive income of the corporate tax entity. That is:
- if an amount derived by a trust is, for example, a dividend (other than a non-portfolio dividend) which passes directly from the trust to a beneficiary that is a corporate tax entity, then the amount will be passive income of the corporate tax entity because the trust distribution is directly referable to the dividend of the trust;
- if an amount derived by a trust is, for example, trading income which passes directly from the trust to a beneficiary that is a corporate tax entity, then the amount will not be passive income of the corporate tax entity because the trust distribution is directly referable to the trading income of the trust.
At the time of writing, the Bill is still before the Parliament. When passed, it will apply from the 2017–2018 income year.
Please do not hesitate to contact our office if you would like assistance in determining whether you may be able to access the reduced corporate tax rate.