The beauty of the base rate entity of lowering your company tax rate

From 1 July 2022, the company tax rate for the base rate entity will be fallen to 25%, and in the prior year of FY2021, the company tax rate for the base rate entity was 26%. This is a dramatic reduction from the standard company rate of 30%. If your company is making a $40,000 net profit, then the tax saving of that 5% would be $2,000.00.

If a base rate entity can enjoy such a low company tax rate, then would every company in Australia be able to enjoy that. The answer would be a no. Only a specific category of companies in Australia would be able to enjoy the lower company tax rate coming as a result of the status of the base rate entity, and it would be if all of the following apply:

  1. your aggregated turnover in the previous income year was less than $50 million,
  2. And 80% or less of your assessable income was base rate entity passive income. The entity didn’t exist in the previous income year.

Passive income can include:

  1. Corporate distributions and their franking credits
  2. Royalties and rent
  3. Most income from interest
  4. Gains on qualifying securities; and a net capital gain.

If your company cannot meet the eligibility criteria for the base rate entity, then the standard 30% company tax rate will apply.

As the leading CPA accountant in Inner West Sydney Ashfield, Belrose Northern Beaches and Adelaide, we are here to help. So come and talk to us, and one of our professional accountants will help you evaluate whether the correct company tax rate has been applied correctly.