Corporate Trustee/Family Trust Base Rate company

Changes to company tax rates

Question: With the new definitions/changes to company tax rates, do bucket companies that get business income/development income qualify as a base rate entity?

We normally do developments whereby there is a development company A and then shareholders, of which the family trust with a corporate trustee is a shareholder. There is a bucket company as a beneficiary.

100% of income is from proceeds of an active development, where we develop the land and sell off the houses.

Does the bucket company of the family trust qualify as a base rate entity?

 

not normally

 

Personal advice time. Generally a company will pay a dividend which is passive franked income.

 

A company should qualify for the lower corporate tax rate of 26% for the 2021 year if:

- Its aggregated annual turnover in the 2021 income year is less than $50m; AND-
- No more than 80% of its assessable income for the year is “base rate entity passive income”.

However a 30% rate should apply if more than 80% of the company's income is base rate entity passive income.

Paragraph 16 of the explanatory memorandum states

"if an amount derived by a trust is, for example, trading income which passes directly from the trust to a beneficiary that is a corporate tax entity, then the amount will not be base rate entity passive income of the corporate tax entity because the trust distribution is directly referable to the trading income of the trust."

Similarly paragraph 17 states

"Similarly, an amount that flows through a chain of trusts to a corporate tax entity (that is, indirectly through one or more interposed trusts to the corporate tax entity) will also retain its character as it passes through each trust for the purposes of determining whether or not the amount is base rate entity passive income of the corporate tax entity."