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Australia Clarifies Small Business Rate Rules

Monday, September 18, 2017

The Australian Government has released draft legislation to clarify that passive investment companies cannot access the lower company tax rate for small businesses.

The draft bill amends the tax law to ensure that a company will not qualify for the lower company tax rate if 80 percent or more of its income is of a passive nature (such as dividends and interest). In addition, it clarifies that the lower rate will only apply if the entity carries on a business in the income year, and if its aggregated turnover for the income year is less than the turnover threshold for entry to the lower rate for that income year.

The company tax rate for small businesses is 27.5 percent. The turnover threshold for the rate was recently increased from AUD2m (USD1.6m) to AUD10m, effective from the 2016-17 financial year. The threshold increased to AUD25m for the 2017-18 financial year, and will rise again in 2018-19, to AUD50m.

The Government intends to continue to increase the turnover threshold, to reach AUD1bn in 2022-23. The threshold would then be removed in 2023-24, making the 27.5 percent rate available to all businesses.

Revenue Minister Kelly O'Dwyer said: "The Turnbull Government is committed to lower taxes on business because we want to see them invest and grow. These amendments will provide greater clarity about who qualifies for the lower company tax rate by excluding passive investment companies."

A consultation on the proposed legislation will close on September 29.