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Guidance on passive income threshold for lower company tax rate

4 min read

The ATO has issued Law Companion Ruling 2019/5, finalising its guidance on the operation of the new base rate entity test, which applies to determine access to the lower corporate tax rate.

From the 2017/18 income year, a corporate tax entity must be a “base rate entity” to be taxed at the lower rate. Whether or not a company is a base rate entity is also relevant to how that company calculates the amount of a franking credits available to attach to a frankable distribution.

The ruling provides advice on:

  • how the new rules work
  • what amounts of assessable income are “base rate entity passive income” (BREPI)
  • the meaning of rent, interest and when a share of net income of a trust or partnership is referable to an amount of BREPI, and
  • how to calculate a corporate tax entity’s corporate tax rate for imputation purposes and work out the maximum amount of the franking credit available to attach to frankable distributions.


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