Most companies with an aggregated annual turnover of less than $50 million will pay tax at 27.5 per cent in 2018-19. Nevertheless, some companies with a turnover below $50 million will continue to pay tax at 30 per cent, particularly companies that earn nearly all their income from passive investments such as rental income or interest income.
To qualify for the lower tax rate in 2018-19:
a company must have an aggregated turnover of less than $50 million, where aggregated turnover is the sum of the company’s ordinary income and the ordinary income of any connected affiliate or entity no more than 80 per cent of their assessable income is base rate entity passive income (replacing the requirement to be carrying on a business).
The full company tax rate of 30 per cent applies to all companies that are not qualified for the lower company tax rate.
As a result to the base rate passive entity income rules in defining the tax rate of a company, there have also been amendments to the dividend imputation rules that apply to the franking of dividends by a company.
The company tax rate for franking distributions needs to assume that the aggregated turnover, assessable income, and base rate entity passive income is the same as 2017-18.
Where the company did not exist in the previous year, its corporate tax rate for imputation purposes will be deemed to be at the lower corporate tax rate of 27.5 per cent for that initial year. These differential rates form several complexities for companies, particularly companies holding investments, as well as for the owners of companies. Rands Financial Services Team is best placed to assist you with these issues.