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Dec 20, 2017 / News

Business Consulting / Taxation

Top Tax Tips - 20 Dec 2017

Keep your wits about you: lowering of company tax rates and imputation

Currently two company tax rates can apply to companies (that are carrying on a business):

  • For the year ended 30 June 2017, companies with turnover of less than $10 million will be subject to company tax at a rate of 27.5% (i.e. company tax will only be 30% if turnover is $10 million or more); and
  • For the year ending 30 June 2018, companies with turnover of less than $25 million will be subject to company tax at a rate of 27.5% (i.e. company tax will only be 30% if turnover is $25 million or more).

From 1 July 2016 onwards, the rate at which dividends will be franked will depend on the company’s turnover of the previous year.  For example, for the year ending 30 June 2018:

  • If the turnover of the previous year (i.e. 2017) is less than the current year’s turnover benchmark ($25 million for 2018), the 2018 dividend will be franked at 27.5%; and
  • If the turnover of the previous year (i.e. 2017) is equal to or more than the current year’s turnover benchmark ($25 million for 2018), the 2018 dividend will be franked at 30%.

Because company profits may be taxed at different rates from the rate at which these dividends are franked, the disparate tax treatment can lead to either:

  • Over-franking of dividends (i.e. if company profits are taxed at 27.5% but franking is done at a rate of 30%) – in which case certain actions need to be undertaken to avoid the imposition of franking deficit tax; or
  • Under-franking of dividends (i.e. if company profits are taxed at 30% but franking is done at only 27.5%) – in which case franking credits may become trapped and may not be usable.

Under proposals before the Parliament, companies will be subject to the lower 27.5% tax rate instead of the 30% tax rate, if they derive 80% or less of total income from passive activities.  Activities that we currently understand to be non-business activities may also be regarded as business (not passive) activities that may be eligible for the 27.5% lower tax rate.

Because these changes and proposed changes are extremely complex, we would recommend that you speak to your Nexia adviser for assistance if you are operating in a corporate structure and/or planning to pay dividends.

New reporting obligations for SMSFs

Currently, SMSFs only have to lodge an SMSF annual return that reports on a member’s income tax, regulatory and member contributions.

However, from 1 July 2018, SMSFs will also be required to lodge a Super transfer balance account report (TBAR) that will report transactions to ensure the $1.6 million transfer balance pension cap and the $1.6 million total superannuation balance cap is not breached. 

Although SMSF TBAR reporting only applies from the next financial year, all income stream valuations and decisions for the current 2018 year must be documented.  We can assist you to help you keep track of the balances in your SMSF.

How can Nexia Edwards Marshall help you?

For any questions or to discuss any of the above in relation to your personal situation, please contact Grantley Stevens or your Nexia Edwards Marshall Advisor.

The material contained in this publication is for general information purposes only and does not constitute professional advice or recommendation from Nexia Edwards Marshall. Regarding any situation or circumstance, specific professional advice should be sought on any particular matter by contacting your Nexia Edwards Marshall Adviser.