This lower company tax rate applies to companies, corporate unit trusts and public trading trusts with a total annual turnover of less than $2 million.
The company tax rate for small businesses has reduced to 28.5% for income years starting on or after 1 July, 2015. This rate applies to companies, corporate unit trusts and public trading trusts with a total annual turnover of less than $2 million.
In order to establish whether or not your business is eligible for the lower company tax rate, visit the ATO’s ‘Am I a small business flowchart’.
What you need to do if lodging your 2016 company tax return early
In the ‘Calculation statement’ use the new rate of 28.5% for the ‘Tax on taxable or net income’ – T1.
If you are a small business company with an early-balancing substituted accounting period, the reduced corporate tax rate will not apply to your 2015-16 income year because it commenced prior to 1 July 2015.
If you are a standard or late balancer, the reduced corporate tax rate will apply to your 2015-16 income year because it commenced on or after 1 July 2015.
Does your company pay franked distributions?
The maximum franking credit than can be allocated to a frankable distribution is unchanged at 30%, including small businesses eligible for the 28.5% tax rate. As small business companies now have a higher franking-credit cap than their tax rate, care needs to be taken not to over-frank – that is, allocate more franking credits than are in the franking account when paying dividends. Doing so can result in you having to pay a franking deficit tax.
Non-profit companies
If you are a non-profit company, you don’t pay tax on the first $416 of your taxable income. Tax is then shaded in at a rate of 55% of the excess over $416 until the tax on your taxable income effectively equals the corporate tax rate. You are then taxed at the corporate tax rate.
As the small business corporate tax rate has been reduced to 28.5%, the shade in limit for small business non-profit companies has been reduced to $863.
The rates of tax payable by small business non-profit companies are now:
Taxable income Tax on taxable income
$0 – $416 Nil
$417 – $863 55%
$864 and above 28.5%
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