Company Tax Rate Reduction for Small Business Entities

From the 1st July 2015, the small business company tax rate has been reduced from 30% to 28.5%.

How are you eligible for the small business company tax rate reduction?

To be considered a small business entity and therefore eligible for the company tax rate reduction you must pass the following two conditions;

•Operate a business for all or part of the income year

•Have less than $2 million aggregated turnover in the previous or current financial year

The aggregate turnover is the income you earned in the ordinary course of running a business and will include the annual turnover of any affiliates and/or business connected to you.

Does this change the maximum franking credits that can be allocated to a franked dividend?

A dividend can still be franked at a maximum of 30%, regarding of it being eligible to for the small business tax rate of 28.50%.

Thus, you need to be careful not to over-frank due to the miss-match between the maximum franking credits and the small business tax rate. Over-franking involves allocating more franking credits than are in the franking account when paying dividends. If you over-frank you may be liable for franking deficit tax.

What is the tax rate for non-small business entities for the 2015/16?

The corporate tax rate will remain at 30% for non-small business entities.

Will there be more reductions to come?

The government is currently proposing that the corporate tax rate for the 2016/17 income year be reduced to 27.5%. This will apply for all companies with an annual turnover of less than $10 million.

Over the next 10 years, the government is hoping to progressively reduce the company tax rate for all entities to 25%.

These measures are yet to be passed through government.

For further information please contact your RCB Advisor office.

Written by Craig Bull

Source: ATO website (www.ato.gov.au), CCH iKnow (www.iknow.cch.com.au)