companies

Companies 2024

Definition of a company: s.995(1) defines a company as including all bodies or associations corporate or unincorporated, excluding partnerships.
Residence of companies: Under s.6(1) ITAA36, a company is considered an Australian resident if it is either incorporated in Australia or, if not incorporated, carries on business in Australia and has central management and control in Australia.
Taxation of companies: Companies are taxed at a flat rate without a tax-free threshold. For the 2019/20 year, the tax rate is either 30% or 27.5% for base rate entities (BRE).

A company is a BRE if 80% or less of their income is passive, and their turnover is below $50 million.
Passive income includes dividends (except non-portfolio), interest, rent, royalties, capital gains, and income from trusts/partnerships.

Franking credits attached to dividends are limited to the amount of tax the company would have paid on the profits from which the distribution is made.

Payments to associates or excessive remuneration may be deemed as dividends by the FCT and disallowed as deductions. These amounts will be deemed unfrankable dividends.

The net profit or loss shown in the income statement (following accounting standards) may not correspond to taxable income under tax law.

To deduct carry forward tax losses, a company must meet the Continuity of Ownership test or the Similar Business test.
Continuity of Ownership test: More than 50% of voting, dividend, and capital rights must be owned continuously.
Similar Business test: If the continuity test is not met, the company must prove it operates a business similar to the original one.

The R&D Tax Incentive allows companies to claim a tax offset for eligible R&D activities.
Eligibility: Entities must be conducting eligible R&D activities and have notional deductions over $20,000.
Tax offset: Small companies with a turnover below $20 million can claim a 43.5% refundable tax offset, while larger companies receive a 38.5% non-refundable offset.

Companies cannot apply the CGT discount method, but capital losses are subject to continuity of ownership and business tests.

Companies must maintain a franking account to track tax credits that can be passed on to shareholders via franked dividends.
Benchmark Rule: Requires that dividends in a franking period be franked at the same rate as the first dividend of that period.
Franking Deficit Tax (FDT): Arises when a company’s franking debits exceed its credits at the end of the year.

Companies pay tax under the PAYG system through either a lump sum or quarterly instalments, submitted with their Business Activity Statement (BAS).