Reduction to Company Tax Rate 2021 – The Essential Details

In October 2018, the Australian government amended the Treasury Laws to reduce company tax rates to bring tax relief to small and medium-sized businesses. The bill passed that the tax rate reduction would be progressive over a number of years.

The company tax rate for the ongoing financial year 2020-2021 is 26%. In the fiscal year 2021-2022, the lowered company tax rate will be 25%. The standard company tax in 2021 is 30%.

Eligibility for the Lowered Company Tax Rate

Typically, company tax applies to companies, corporate unit trusts, and public trading trusts. For a company to be eligible for the company tax rate reduction, it needs to be a Base Rate Entity (BRE) in the respective year. A BRE is a company that meets the following conditions:

  • Has an aggregate turnover of least than AUD 50 million
  • 80% or less of its total assessable income is Base Rate Entity Passive Income (BREPI)

What Is Base Rate Entity Passive Income (BREPI)

BREPI is passive income such as:

  • Interest income
  • Dividends
  • Royalties
  • Rent
  • Corporate distributions and their franking rate and credits
  • Net capital gain
  • Gains on qualifying securities

Net capital gains and any other amounts included in trust distribution are also attributed as BREPI unless the amount received from the trustee only consists of business trading income. Any traceable amount that is part of the assessable income, either as a beneficiary of a trust or partner in a partnership, is also eligible for the reduced company tax rate.

However, certain exemptions apply to BREPI. For instance, non-portfolio dividends do not qualify as BREPI. Investment companies that receive only passive income are not eligible for the lowered tax rate; rather, the standard 30% tax rate applies.


The ABC company has a coffee shop and a restaurant that brought in $300,000 and $1000,00 respectively. The company also owns a rental property that earned $200,000. The total assessable income is $600,000. ABC has an aggregate turnover income that is less than $50 million; therefore, the 26% tax rate will apply.

Impact of the Lowered Company Tax Rate on the Dividends Paid in 2021

The reduction in the company tax rate will affect BRE dividend payments in 2021. Typically, a company’s maximum franking credit is dependent on the corporate tax rate. To determine the corporate income tax rate for imputation purposes, you will need to factor in the company’s aggregated turnover, BREPI, and assessable income in the previous year.

In this case, 2020-2021, 26% corporate tax rate will apply if:

  • Your aggregated income turnover in 2020 does not exceed AUD 50 million;
  • 80% or less of your assessable income was BREPI; or
  • Your company did not exist in the last year.

Shareholders need to be privy to the impact of the company tax reduction as they may need to top up their income tax resulting in a higher marginal tax rate.


Let’s say Company Z’s aggregated turnover in the 2020 financial year was $20 million, and it did not have another income in the particular year. To pay out dividends to its shareholders, the company needs to determine its franking credit for imputation purposes.

It will be subject to the 26% corporate income tax since it is BRE. If Company Z has AUD 80,000 to pay in dividends, then the maximum franking credit will be:

$80,000 X 26/ (100%-26%)=$28,108

How to Make the Most of the Company Tax Rate Reductions

The 2021 reduction in corporate tax rate will save your business a significant amount of money. By optimizing your company’s financials, you can be able to leverage the lower tax to take your business to the next level. Here are some tips for optimizing your company’s finances.

Review Your Business Income

Every business goes through income fluctuations such that you’re making high corporate profits in a given time and low income in other times. Review your corporate income to understand the various income seasons and identify whether there are some contributing factors to the high-income phases that you can uphold. Also, identify your highest and lowest income sources.

Examine Your Current Business Costs

Look at your business expenditure in terms of the raw materials and supplies, labour, service, taxes, and other miscellaneous costs. Identify your highest spenders and whether there are some costs that you can cut down without impacting the performance of the business.

Balance Your Accounting Books

Compare the income vs the cost to establish whether you’re getting a good return on your investment. Determine whether you can take steps to keep growing your income while keeping the costs significantly low. Come up with a budget and plan for the coming income year.

Utilize the Amount Saved on the Reduced Company Tax Rate to Grow an Aspect of Your Business.

The reality is if you do not plan for the amount save from the reduced company tax, it will find ways to be used up within the business anyway. Be intentional about using that money to grow or improve an aspect of your business. For instance, you could increase your marketing budget, create and test a new product, do market research, or hire a professional.

With the current challenging economic environment, particularly due to the effects of the COVID-19, most businesses will appreciate the reduction in the company tax rate. The last phase of the tax reduction will be in the 2021-2022 financial year, whereby the company tax rate will reduce to 25%.

If you are not clear about implementing the new taxable income rate in your company, either consult a tax specialist or the tax department for further assistance. Ultimately, leverage the tax reduction to optimize your company’s finances or take the company to the next level.

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