The draft bill amends the definition of “base rate entity” of the Income Tax Rates Act 1986 so that a corporate tax entity will not qualify for the lower company tax rate for an income year if 80% or more of its assessable income is “base rate entity passive income”. Base rate entity passive income includes:
- dividends;
- interest income;
- royalties;
- rent;
- capital gains; and
- amounts that flow through a partnership or trust to the extent that it is attributable to passive income.
Base rate entity passive income does not include a non-portfolio dividend (company receiving the dividend has a voting interest amounting to at least 10% of the voting power in the company paying that dividend). Therefore, dividends derived, for example, by a holding company which are made by a wholly-owned subsidiary company that carries on active trading business will not be base rate entity passive income of the holding company.
The amendments will broadly commence on 1 July 2016 and apply to the 2016-17 income year and later years.
The draft legislation is available on the Treasury website. Submissions on the exposure draft legislation are due by 29 September 2017.
