Private limited companies in Australia are subject to specific taxation rules and rates that impact their financial operations. In this comprehensive guide, we’ll explore the essential aspects of taxation for private limited companies, including company tax rates, eligibility criteria, and the nuances of tax planning.

Understanding Company Tax Rates

Private limited companies in Australia are primarily taxed at the company tax rate, which has seen some notable changes in recent years.

• Standard Company Tax Rate: The standard company tax rate stands at 30% for most companies.
• Base Rate Entity Company Tax Rate: For companies that qualify as base rate entities, there’s a reduced company tax rate of 25% as of the 2021–22 income year. This rate has undergone several adjustments in previous years.

To qualify as a base rate entity, a company must meet specific criteria, including having an aggregated turnover below a certain threshold and having a limited portion of assessable income classified as base rate entity passive income.

Key Considerations For Base Rate Entity Status

Determining whether your company qualifies as a base rate entity is crucial for enjoying the lower tax rate. Here are some key considerations:

• Aggregated Turnover Threshold: The aggregated turnover threshold was $25 million for the 2017–18 income year and increased to $50 million from the 2018–19 income year onwards. The aggregated turnover from prior years doesn’t impact the determination of base rate entity status for a particular income year.
• Base Rate Entity Passive Income: Base rate entity passive income includes various income sources such as corporate distributions, franking credits, royalties, rent, interest income, gains on qualifying securities, net capital gains, and income from partnerships or trusts traceable to base rate entity passive income.

Transition From Small Business Entity Status

It’s important to note that, starting from the 2017–18 income year and onwards, eligibility for the lower tax rate is determined based on whether a company qualifies as a base rate entity, rather than a small business entity. The specific criteria for carrying on a business can be found in Taxation Ruling TR 2019/1.

Tax Considerations For Not-for-Profit Companies

Not-for-profit companies in Australia enjoy certain tax benefits, including an exemption on the first $416 of taxable income. Beyond this threshold, these companies are subject to a tax rate of 55% on the excess until the tax effectively equals the standard company tax rate of 30%. The threshold for not-for-profit companies varies based on their base rate entity status.

Maximum Franking Credits

Determining the corporate tax rate for franking distributions involves assuming that aggregated turnover, assessable income, and base rate entity passive income remain consistent with the previous income year. The corporate tax rate for imputation purposes has seen changes in recent years, particularly for base rate entities.

Conclusion

You need to know the complexities of taxation for private limited companies in Australia. This will aid in effective tax planning and compliance with tax laws. You may even seek guidance from tax professionals or the Australian Taxation Office (ATO). Speaking of expert taxation advice, you can rely on KPG Taxation. They have tax agents who can prove to be beneficial in ensuring your company meets its tax obligations and optimises its financial position.