The company tax rate is changing

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Posted May 24, 2021

This blog post is general information only and should not be considered to be financial advice. HABA recommend that all salon owners seek independent financial advice on their business.

 

There are changes coming to company tax rates. While the full company tax rate is 30%, your company may be eligible for a lower company rate.

 

In order to be eligible for a company tax rate, you must have a business that is incorporated (which is operating as a Pty Ltd or within a Trust) rather than operating as a sole trader.

 

There are a number of benefits to operating as an incorporated business, including reduced personal liability and a lower tax rate. Similarly, there are benefits to running your business within a Trust model, including greater privacy and protection from any (potential) legal action.

 

The first thing salon owners need to do is ensure that their business is structured in the right way to take full advantage of the different structures in place for businesses in Australia and ensure adequate personal protection for their finances. HABA encourages all salon owners to speak to a financial adviser on the best way to structure their business.

 

New company tax rates.

If you are a ‘base rate entity’ (which includes both a trust or company) your company tax rate is:

• 27.5% from the 2017 – 18 to 2019 – 20 income years
• 26% for the 2020 – 21 income year
• 25% from the 2021 – 22 income year onwards.

For your company to be a ‘base rate entity’, it needs to meet the following eligibility criteria:

• aggregated turnover of less than $25 million for the 2017 – 18 income year or $50 million from the 2018 – 19 income year onwards, and
• if your company earns passive income, it cannot exceed 80% of the company’s assessable income, which can include:
  • corporate distributions and franking credits on these distributions
  • royalties and rent
  • interest income
  • gains on qualifying securities
  • a net capital gain.

This essentially means that you must be operating as functioning business and producing income from your activities.

Before making any decisions on company structures, it is best to seek financial advice from an independent financial adviser to walk you through the process and to understand the implications these changes have on your business in the future. It is not a one-size-fits-all approach and needs to be considered carefully.

 

Further advice or assistance

For further advice or assistance on this topic, or any workplace relations matter, please #AskHABA by calling the HABA Advice Line on 02 9221 9911, 8:30am – 5:30pm AEDT Monday to Friday.

If you’re not already a HABA Member, you can join here or by calling the office on (02) 9221 9911.