From the 2017 income year, the small business company tax rate has been reduced to 27.5%. Currently you are a small business entity if you are a sole trader, partnership, company or trust that:

  • is carrying on a business for all or part of the income year, and
  • has an aggregated turnover less than $10 million (the turnover threshold).

The company tax rate remains at 30% for all other companies that are not small business entities.

To work out if you are eligible for the small business company tax rate, you first need to work out if you are a ‘small business entity’ in an income year. You must review your eligibility each year.

The Australian Taxation Office (ATO) has also issued draft ruling TR2017/D7 on whether a company is ‘carrying on a business’ within the meaning of the tax law.

Business is defined to include ‘any profession, trade, employment, vocation or calling’, but excludes ‘occupation as an employee’.

Often it is not possible to definitively state whether a person is carrying on a business. Whether the activities of a person constitute the carrying on of a business is a question of fact, and must be answered based on a wide view of all the relevant factors.

The government has recently introduced a Bill clarifying that passive investment companies will not qualify for the lower company tax rate.

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 will amend the tax law to ensure that a company will not qualify for the lower company tax rate if more than 80 per cent of its assessable income is passive income (such as interest, dividends or royalties). This test will replace the previous requirement that a company be ‘carrying on a business’.  The amendment will apply prospectively from the 2018 income year.

Need help?

Please contact one of our tax accountants at The Quinn Group on (02) 9223 9166 or submit an online enquiry