As many practitioners would be aware there has been considerable uncertainty around the application of the lower company tax rate rules, especially in light of the ATO’s comments in TR 2017/D2 that suggested that the threshold for carrying on a business is lower for a company than it is for other taxpayers.
While we are still waiting on the ATO to provide further clarification around this issue (not expected until November 2017), the Government has stepped in to try and limit the scope of the tax rate reduction to companies that earn more than 20% of their income from active trading activities.
Treasury has released exposure draft legislation setting out how the new rules are intended to apply but keep in mind that this could potentially change before the new rules are actually introduced.
These changes should ensure that companies that only hold rental properties would not qualify for the lower tax rate. However, a company that receives distributions from a related trust could still qualify if the company carries on a business in its own right and more than 20% of its income is attributable to trading profits (directly or indirectly through the trust). In this scenario we will still end up having to determine whether the company carries on a business under ordinary principles.
To find out more about the basic elements that qualify a company for the lower rate of 27.5% and the detailed ruling about Passive income, come and talk to us Tax Ideas Accountants & Advisers…https://taxideas.com.au/booking/ Tel: (02) 8318 1545