New passive income test for lower corporate tax rate

New rules ensure that companies with more than 80% passive income will not qualify for the reduced company tax rate.

 

 

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.

This 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.

You must also “carry on a business” to be eligible for the lower corporate tax rate.

 

 

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