Does a passive investment company carry on a business?

The company tax rate reduction is designed to benefit small businesses “carrying on a business”. Recent media attention has created some confusion over who is entitled to the reduced rate.

The ATO has provided clarification in a recent Bill.Home Office

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 allows corporate tax entities to be treated as a Small Business Entity for the purpose of accessing the reduced tax rate provided assessable income does not include 80% or more from passive investments.

Passive investment income includes:

- Dividend Income (other than non-portfolio dividends – where the entity holds at least 10% of the voting power & interest)

- Rental Income

- Capital Gain

- Interest Income

- Royalties

- Partnership & Trust Distributions (to the extent that it is attributable to an amount that is passive income)

If the Company receives a distribution or dividend from a related business, operated via a trust or partnership structure, it may meet the criteria of a Small Business Entity and be taxed at 27.5% for the 2018 Income Tax Year.

If you are not sure if your investment company is carrying on a business, please contact us to discuss your circumstances.