New passive income test for lower corporate tax rate

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 company tax rate.
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;
• interest;
• royalties;
• rent;
• 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.
At the time of writing, the Bill is still before the Parliament. When passed, it will apply from the 2017–2018 income year.
The lower company tax rate of 27.5% is available in 2017–2018 for small businesses and corporate base rate entities with turnover of less than $25 million.

TIP: You must also “carry on a business” to be eligible for the lower corporate tax rate – read on to find out more about what this means for companies.

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