Draft legislation on lower corporate tax rate eligibility released
Treasury has released exposure draft legislation that will generally exclude passive investment companies from accessing the lower corporate tax rate from the 2016/17 income year.
Currently, the corporate tax rate for qualifying small corporate tax entities has been reduced to 27.5% for small business entities with a turnover threshold of $10m in the 2016/17 income year. From the 2017/18 income year, access to this rate will be expanded to apply to “base rate entities” with the turnover threshold increasing progressively to $50m in the 2018/19 income year. Under the Treasury Laws Amendment (Enterprise Tax Plan No 2) Bill 2017 it is proposed that the lower corporate tax rate will be extended to all corporations by the 2023/24 income year.
The exposure draft legislation proposes to amend the Income Tax Rates Act 1986 to ensure that a corporate tax entity will be eligible for the lower corporate tax rate only if it is a base rate entity, ie:
- the corporate tax entity carries on a business in the income year
- the aggregated turnover of the corporate tax entity for the income year is less than the aggregated turnover threshold for that income year, and
- the corporate tax entity does not have passive income for that income year of 80% or more of its assessable income for that income year.
The amendments will commence from 1 July 2016, and apply to the 2016/17 and later income years.