ATO guidance: what is “carrying on a business”?

The ATO has issued a draft taxation ruling to explain the factors it will consider when deciding whether a company (incorporated under the Corporations Act 2001) is “carrying on a business”. This is one of the tests companies and small businesses must pass to be eligible for the lower corporate tax rate.

It’s not possible to definitively state whether a company carries on a business, but the draft ruling says that ATO will consider a range of indicating factors. Specifically, a company is likely to be carrying on a business if it:
• is established and maintained to make a profit for its shareholders; and
• invests its assets in gainful activities that have both a purpose and prospect of profit.

TIP: Wondering whether you can access the reduced corporate tax rate? Talk to us today to find out more about how the passive income and carrying on a business tests apply to your situation.

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