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 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 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% rate will apply.

Get reliable assistance from top CPA accountants in Inner West Sydney Ashfield, Belrose Northern Beaches, and Adelaide: Get Informed about your company’s tax rates