Practitioners will need to be on top of the reductions in the corporate tax rates, which can be confusing. The following is helpful, as it is the ATO’s summary of the relevant Acts and Bills, with the relevant ‘phase in’ dates and thresholds spelt out in tables.
On 1 September 2016, the Government introduced Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 that proposed to progressively reduce the corporate tax rate from 30% to 25% for all corporate entities. The Bill was subsequently amended to limit these rate reductions to ‘base rate entities’ – which is to say: corporate entities with an aggregated turnover of:
- less than $25 million for the 2017–18 income year; and
- less than $50 million for the 2018–19 income year – known as base rate entities.
- prior to this a reduced rate of 28.5% was available to ‘small business entities’ (SBE’s) with a turnover of only $2m in the 2015/16 year and a 27.5% rate, in the following 2016/17 year for SBE’s with the new $10m threshold.
This amended Bill became law, on 19 May 2017 (the 2017 Enterprise Act). There is a table below setting out the rates, year by year, under the law as it stands at present.
But, on 11 May 2017, the Government introduced the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 into the House of Representatives (the 2017 Enterprise No. 2 Bill). If passed, it will extend the ‘phase in’ of these rate reductions, to all corporate entities, as set out in the Table below. A brief summary of this is as follows.
- The 27.5% reduced rate, will go on being available to companies with increasing turnover thresholds, of $100m, $250m, $500m and $1b, for each year after 2018/19. In the 2023/24 year, no turnover threshold will apply, and all companies will be taxed at the 27.5% rate.
- Over the following three years, the rate for all companies will step down (annually): to 27%, 26% and, then, the final corporate rate of 25% (in the 2026/27 year).
Also, on 18 October 2017, the Government introduced a further Bill: the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 (the 2017 Passive Income Bill). If this receives Royal Assent, corporate entities with no more than 80% base rate entity passive income will be eligible for the lower corporate tax rate. The date of effect will be from the 2017–18 income year.
2017 Enterprise Act
Under the current law the following corporate tax rates apply.
| Year | Aggregated turnover threshold | (SBE) Corporate entities under the aggregated turnover threshold | All other corporate entities |
|---|---|---|---|
| 2015–16 | $2m | 28.5% | 30.0% |
| 2016–17 | $10m | 27.5% | 30.0% |
| Year | Aggregated turnover threshold | (BRE) Corporate entities under the aggregated turnover threshold | All other corporate entities |
|---|---|---|---|
| 2017–18 | $25m | 27.5% | 30.0% |
| 2018–19 | $50m | 27.5% | 30.0% |
| 2019–20 to 2023–24 | $50m | 27.5% | 30.0% |
| 2024–25 | $50m | 27.0% | 30.0% |
| 2025–26 | $50m | 26.0% | 30.0% |
| 2026–27 | $50m | 25.0% | 30.0% |
The maximum franking credit that can be allocated to a frankable distribution paid by a corporate entity will be based on their applicable corporate tax rate for imputation purposes.
From the 2017–18 income year, a corporate entity works out their corporate tax rate for imputation purposes by:
- assuming that their aggregated turnover, base rate entity passive income, and assessable income are the same as in the previous income year, and
- applying the corporate tax rate for the current income year.
If the entity did not have a previous year, the corporate tax rate for imputation purposes will be 27.5%.
2017 Enterprise No. 2 Bill
The Government introduced a second Bill that progressively extends the lower corporate tax rate to all corporate entities. The table below outlines the proposed changes and timeframes. This law has not yet passed.
| Year | Aggregated annual turnover threshold ($m) | Entities under the threshold (base rate entities up to 2022–23) | All other corporate tax entities |
|---|---|---|---|
| 2019–20 | $100m | 27.5% | 30.0% |
| 2020–21 | $250m | 27.5% | 30.0% |
| 2021–22 | $500m | 27.5% | 30.0% |
| 2022–23 | $1b | 27.5% | 30.0% |
| 2023–24 | No threshold | 27.5% | 27.5% |
| 2024–25 | No threshold | 27.0% | 27.0% |
| 2025–26 | No threshold | 26.0% | 26.0% |
| 2026–27 | No threshold | 25.0% | 25.0% |
2017 Passive Income Bill
Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 would amends the law to limit the lower corporate tax rate to base rate entities with no more than 80% passive income from 2017–18 to 2023–24.
Under the proposed law, a corporate entity is a base rate entity, and will receive the lower corporate tax rate from the 2017–18 income year, if they:
- have an aggregated turnover less than the relevant threshold
- have no more than 80% base rate entity passive income. This income includes:
- dividends other than non-portfolio dividends
- franking credits on such dividends
- non-share dividends
- interest income, royalties and rent
- gains on qualifying securities
- net capital gains
- income from trusts or partnerships, to the extent it is referable (either directly or indirectly) to an amount that is otherwise base rate entity passive income.
This is to allow investment companies, that receive 30% franking credits, to pass on the whole 30% credits to shareholders (instead of leaving the difference stranded in the company).
[ATO website: reducing corporate tax rates]