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:
- your aggregated turnover in the previous income year was less than $50 million,
- 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:
- Corporate distributions and their franking credits
- Royalties and rent
- Most income from interest
- 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.
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