Calculating Company Tax Rates In 2017 Ato

Calculate your company’s tax liability for the 2016-2017 financial year based on ATO rules. Includes base rate, small business concessions, and franking credits.

Comprehensive Guide to Calculating Company Tax Rates in 2017 (ATO Rules)

The 2016-2017 financial year introduced significant changes to Australia’s company tax system, particularly with the reduction of the small business company tax rate from 28.5% to 27.5%. This guide provides a detailed breakdown of how to calculate your company’s tax liability for the 2017 financial year according to Australian Taxation Office (ATO) regulations.

1. Understanding the 2017 Company Tax Rates

The 2017 financial year (1 July 2016 – 30 June 2017) saw a tiered company tax system in Australia:

• Standard company tax rate: 30% for most companies
• Small business company tax rate: 27.5% for companies with aggregated turnover less than $10 million
• Base rate entity status: Introduced to determine eligibility for the lower 27.5% rate

Company Type	Tax Rate (2017)	Turnover Threshold	Key Requirements
Standard Company	30%	All turnovers	Default rate for most companies
Small Business Company	27.5%	< $10 million	Must be a base rate entity
Base Rate Entity	27.5%	< $10 million	80% or less of income is passive

2. Determining Your Company’s Tax Rate

To determine which tax rate applies to your company for the 2017 financial year:

1. Calculate aggregated turnover: This includes the annual turnover of your company plus the annual turnovers of any connected or affiliated entities.
2. Check the $10 million threshold: If your aggregated turnover is less than $10 million, you may qualify for the 27.5% rate.
3. Assess passive income: For the 27.5% rate, no more than 80% of your company’s assessable income can be passive income (e.g., dividends, interest, rent, royalties, net capital gains).
4. Verify base rate entity status: If you meet the turnover and passive income tests, you’re a base rate entity eligible for the 27.5% rate.

3. Calculating Taxable Income

Your company’s taxable income is calculated as:

Taxable Income = Assessable Income – Allowable Deductions

Key components include:

• Assessable income: All ordinary income (business income, capital gains) plus statutory income
• Allowable deductions: Business expenses that are directly related to earning assessable income
• Capital allowances: Depreciation of business assets
• Trading stock adjustments: Changes in the value of trading stock

4. Franking Credits and Dividends

The 2017 financial year maintained Australia’s imputation system where:

• Companies can attach franking credits to dividends paid to shareholders
• Franking credits represent tax the company has already paid on its profits
• The maximum franking credit rate changed to reflect the new 27.5% rate for eligible companies

For companies paying dividends:

• Franking account balance: Must be maintained to track credits and debits
• Franking percentage: The percentage of the dividend that is franked (maximum 100%)
• Franking credit calculation: (Dividend amount × (Tax rate / (1 – Tax rate)))

Company Type	Tax Rate	Maximum Franking Credit Rate	Example for $100 Dividend
Standard Company	30%	30/70	$42.86 franking credit
Small Business Company	27.5%	27.5/72.5	$37.93 franking credit

5. Tax Offsets and Rebates

Several tax offsets were available to companies in 2017:

• Research and Development (R&D) Tax Incentive: 43.5% refundable tax offset for eligible R&D activities (45% for companies with turnover under $20 million)
• Small Business Income Tax Offset: Up to $1,000 for individual taxpayers with business income (not directly for companies but may affect shareholders)
• Foreign Income Tax Offset: For foreign tax paid on overseas income

6. Payment and Reporting Obligations

Key deadlines and requirements for the 2017 financial year:

• Company tax return due date: Generally 28 February 2018 (or later if using a tax agent)
• PAYG installments: Quarterly payments may be required based on prior year’s tax liability
• Franking account reconciliation: Must be completed as part of the company tax return
• Business Activity Statements (BAS): Quarterly or annual reporting of GST, PAYG withholding, and other tax obligations

7. Common Mistakes to Avoid

When calculating your 2017 company tax:

1. Incorrect turnover calculation: Failing to include all affiliated entities in aggregated turnover
2. Misclassifying income: Incorrectly treating passive income as active income for base rate entity test
3. Franking credit errors: Over-franking dividends beyond the company’s franking account balance
4. Missing deductions: Not claiming all allowable business expenses
5. Late lodgment: Missing tax return deadlines can incur penalties

8. Case Study: Small Business Company Example

Let’s examine a practical example for a small business company in 2017:

Company Details:

• Aggregated turnover: $8.5 million
• Taxable income: $450,000
• Passive income: $80,000 (17.78% of total – qualifies as base rate entity)
• Franked dividends received: $50,000 with $18,965 franking credits attached
• Tax already paid via PAYG installments: $100,000

Calculation:

1. Applicable tax rate: 27.5% (qualifies as base rate entity)
2. Gross tax payable: $450,000 × 27.5% = $123,750
3. Less franking credits: $18,965
4. Less PAYG installments: $100,000
5. Net refundable: $123,750 – $18,965 – $100,000 = ($95,215) refund

Official ATO Resources

ATO Company Tax Rates for 2016-17 ATO Small Business Company Tax Rate Details ATO Franking Credits Information for Companies

9. Changes from Previous Years

The 2017 financial year introduced several important changes from 2016:

• Tax rate reduction: Small business rate decreased from 28.5% to 27.5%
• Turnover threshold increase: Expanded from $2 million to $10 million for access to the lower rate
• Base rate entity definition: New passive income test introduced (80% threshold)
• Franking credit adjustments: Maximum franking credit rate changed to reflect new tax rates

10. Planning for Future Years

While this guide focuses on 2017 calculations, it’s important to note that subsequent years saw further changes:

• 2018: Small business rate remained at 27.5%, threshold increased to $25 million
• 2019: Rate reduced to 26% for base rate entities
• 2020: Rate reduced to 25% for base rate entities with turnover under $50 million

Understanding the 2017 rules provides important context for these later changes and helps in tax planning strategies.

11. Record Keeping Requirements

Proper record keeping is essential for accurate tax calculations and ATO compliance:

• Maintain records for 5 years (generally)
• Document all income and expenses
• Keep receipts for deductions claimed
• Maintain franking account records
• Document calculations for aggregated turnover
• Keep minutes of director meetings regarding dividends and franking decisions

12. Seeking Professional Advice

While this calculator and guide provide a good starting point, company tax calculations can be complex. Consider consulting a tax professional when:

• Your company has complex structures or related entities
• You’re unsure about the classification of income (active vs passive)
• Your company has international operations or transactions
• You’re planning significant dividends or capital distributions
• Your aggregated turnover is close to the $10 million threshold

A qualified tax accountant or registered tax agent can provide personalized advice tailored to your company’s specific circumstances and help optimize your tax position while ensuring compliance with all ATO requirements.