Company Tax Rate - Small Business 2017

The recent law change that reduced the 2017 company tax rate to 27.5% now applies to a small business (only) For the 2017 year that is defined by the turnover of the company and its connected entities being $10m or less and not the former $2m test.

The ATO have cautioned that a company which is only a corporate trust beneficiary (ie a bucket company) wont conduct a small business. Its tax rate will remain at 30%

A company which conducts a small business AND receives trust income satisfies the small business requirement and would be taxed on all its assessable income at 27.5%. However, care must be taken to ensure that the trust deed is read and that the company is a eligible trust beneficiary.

Other benefits for a small business entity (SBE) include:

• $20K write off for assets
• FBT car parking exemption
• FBT portable electronic devices exemption rule (now broader than previously)
• Simplified trading stock rules
• Broader depreciation options incl pooling
• Tax deductible start up costs for advisers (eg tax, legal etc)
• Simplified prepayment rules (12mth rule)

 

Thanks Paul, timely reminder for SBE owners at EOFY.

 

kpmg has a different view on corporate beneficiaries receiving trust distributions

Qualifying for the small business tax rate

 

I think this point was brought up by another poster on another thread of Paul's here about a month ago.

It is interesting.

 

The relevant footnote:

This ruling is not concerned with what amounts to carrying on business. However, generally, where a company is established or maintained to make profit or gain for its shareholders it is likely to carry on business. (Brookton Co-operative Society Ltd v FCT (1981) 147 CLR 441 per Aicken J at 469; American Leaf Blending Co Sdn Bhd v D-G of IR [1978] 3 All ER 1185 Per Lord Diplock at 1189; Inland Revenue Commissioners v Westleigh Estates Company Ltd; South Behar Railway Company Ltd; Eccentric Club Ltd [1924] 1 KB 390). This is so even if the company only holds passive investments, and its activities consist of receiving rents or returns on its investments and distributing them to shareholders. (Brookton Co-operative Society Ltd v FCT (1981) 147 CLR 441 per Aicken J at 469; Inland Revenue Commissioners v Westleigh Estates Company Ltd; South Behar Railway Company Ltd; Eccentric Club Ltd[1924] 1 KB 390; Lilydale Pastoral Co. Pty. Ltd. v. FCT 87 ATC 4235; American Leaf Blending Co. Sdn Bhd v. Director-General of Inland Revenue (Malaysia) [1978] 3 All E.R. 1185 at p 1189; FCT v Total Holdings 79 ATC 4279; Ruhamah Property Co Ltd v Federal Commissioner of Taxation [1928] HCA 22; (1928) 41 CLR 148; FC of T v. E A Marr & Sons Sales Ltd (1984) 2 FCR 326 at 330-1; 84 ATC 4580 at 4585-4586

Legal database - View: Rulings: TR 2017/D2

 

The key element is.. does the company carry on a small business? If it does then the additional trust income may be taxed at a lower rate than 30 %....Deriving active business income can also count but care must be taken ehen the company income is passive ie only investment income or dormant.

Tax advice and restructuring opportunities in some cases.