ATO guidance on when a company carries on a business for tax rate purposes

The Australian Taxation Office (ATO) has commented on its that it is proposing to amend Draft Taxation Ruling . TR 2017/D7 provides guidance on when a company carries on a business within the meaning of section 23AA of the Income Tax Rates Act 1986 (Cth) (ITR 1986) so that it applies more broadly in relation to section 23 of the ITR 1986 and section 328-110 of the Income Tax Assessment Act 1997 (Cth) which deals with the concept of a ‘small business entity’. The ATO has also indicated that the reasoning expressed in TR 2017/D7 is equally applicable to determining whether a company is a small business entity within the meaning of those provisions for the 2015-16 and 2016-17 income years, and therefore the applicable tax rate that applies to it in those income years.

Comments were due on the draft ruling by 1 December 2017.

International Trends in Company Tax and Collective Investment Vehicles

Treasury has published a which aims to provide a cross-country comparison on company tax rates, company tax collections, thin capitalisation rules and collective investment vehicles (CIVs). The paper contains the following key findings:

  • There is a global trend to cut statutory company tax rates. In the last decade, most countries have sought to cut the statutory company tax rate in an effort to attract foreign capital. This trend is likely to continue with the United Kingdom’s corporate tax rate scheduled to fall further, to 17 per cent, by 2020.
  • Governments are encouraging the broader use of CIVs to attract a greater share of economic activity to their country and attract foreign private sector investment.
  • The majority of countries selected in the study have thin capitalisation rules as an anti-avoidance measure to limit the level of interest deductions available to multinationals to reduce their overall tax liability. There is an expectation that countries will continue to expand their thin capitalisation rules to address profit shifting.

Government continues to focus on company tax rate cuts

In a speech at the Business Council of Australia’s annual dinner, the Prime Minister reiterated the Government’s intention to pursue the reduced company tax rate for all companies, stating that “If we don’t reduce our corporate rate to 25 per cent as planned .... over the coming decade, the only advanced nations that will exceed Australia’s tax rate are Japan and Malta.

In a speech to the Committee for Economic Development of Australia (CEDA), the Federal Treasurer also cited Treasury modelling which demonstrated that tax cuts for all companies will deliver a boost to before-tax real wages of up to 1.2 per cent.