The tax rate for all companies used to be at 30% but since 2015 it has been gradually decreasing. What is accelerated tax rate reduction and how does it affect your business?
In 2015, the threshold for the reduction was for businesses with under $2 million turnover. In 2016, the threshold increased to $10 million and in 2017, it further increased to $25 million. Starting this year, the threshold will cover all businesses with under $50 million turnover and positively impact about 3.3 million Australian businesses. This is, indeed, a much-needed relief for plenty of small businesses and it will help Australian companies to become more competitive in the global market with other countries having reduced corporate tax rates as well.
The corporate tax rate will continue to decrease over the next three years for base rate entities (BREs). The current tax rate is at 27.5% but will be decreased to 26% for BREs for the year ending 30 June 2021 and to 25% to BREs from 1 July 2021.
Aside from the turnover threshold, there are other restrictions for companies. For instance, there should be no more than 80% of their income that is passive in nature. This would include franking credits, dividends, interest income, non-share dividends, rent, royalties, net capital gains and gains on securities and trust and partnership distributions.
The new tax rate impacts the top-up tax for people receiving fully franked dividends. Starting 2016-17, the franking credits on fully franked dividends are determined on a yearly basis, which is often the same as the corporate tax. However, there may be different situations in a particular year and it may be a problem for some small businesses in the future.
To understand how the new tax rate can affect your business, click here to speak to business accountants and experts. We would love to help you formulate investment strategies and streamline your processes to take your business to the next level. Our goal is to help you grow your business, find ways to invest more and increase your productivity.
As you look for different ways to grow and improve your business, seeking professional advice from a business consultant could prove to be an important and helpful decision.