The federal government has made changes to some company tax rates coming into effect this year.

Base rate entities are entities that have an aggregated turnover of less than $50 million and have 80 per cent or less of their assessable income as ‘passive income’. This includes income types such as corporate distributions, royalties, a net capital gain, rent, and interest income. The change replaces the requirement for these companies to be carrying on a business.

From the 2017–18 to 2019–20 income years, companies that are base rate entities will now apply the lower 27.5 per cent company tax rate (down from 30 per cent). The rate has been reduced further to 26 per cent in the 2020–21 income year. It then reduces to 25 per cent in the 2021–22 income year and future years. See the table from the Australian Tax office below illustrating these tax rate changes.

Most companies will meet the base rate entity criteria and as such the lower tax rates will apply however for companies that do not meet the criteria for a base rate entity, the full company tax rate of 30% still applies.

Source: Australian Taxation Office 2021 (https://www.ato.gov.au/rates/changes-to-company-tax-rates/