Australia · Income Tax Rates Act 1986 s 23AA
Is your company a base rate entity?
Two tests decide whether a company pays 25% or 30%: turnover under $50 million, and passive income no more than 80% of its assessable income. Put the company’s figures in for the rate — and the rate it franks dividends at, which runs on last year’s figures, not this year’s.
Checked against the legislation — how we check.
Company tax rate this year
25%
A base rate entity: both tests met.
How it is tested
This applies the two tests to the figures you give it. It does not work out aggregated turnover or decide what is passive income for you. General information, not tax advice.
The two tests
Section 23AA of the Income Tax Rates Act makes a company a base rate entity for a year if both of these are true:
- its aggregated turnover for the year, worked out at the end of it, is less than $50 million; and
- no more than 80% of its assessable income is base rate entity passive income.
Pass both and the rate is 25%; fail either and it is 30%. The turnover is the year’s actual figure — the ATO is explicit that last year’s turnover and estimates are irrelevant — and “aggregated” means it includes every affiliate and connected entity. The ATO’s example is a $20 million pet-accessory maker owned by a US company with $150 million of sales, all overseas: aggregated, $170 million, and so 30%.
What counts as passive income
Section 23AB lists it:
- dividends and other distributions from companies, other than non-portfolio dividends, and the franking credits on them
- non-share dividends
- interest, royalties and rent
- gains on qualifying securities
- a net capital gain
- a share of a partnership’s or trust’s income, to the extent it traces back to any of the above
Interest comes off the list for a company in the business of finance: a financial institution, a registered entity that carries on a general business of providing finance on a commercial basis, an Australian credit licensee or credit representative, a financial services licensee whose licence covers dealings in securities (or its authorised representative), or a kind of entity specified by legislative instrument. It also comes off to the extent it is a return on an equity interest in a company. And the capital gain catches companies by surprise: the ATO’s software developer sold the office its own staff worked in, and an $850,000 gain against $150,000 of trading income took it to 85% passive and 30% for that year.
The ATO’s examples, run through this test
| Company | What it is | Passive share | Rate |
|---|---|---|---|
| Happy Feet Pty Ltd | sells socks online, with expansion capital in a term deposit | 3.8% | 25% |
| Coffee and Cake Pty Ltd | a cafe that is also beneficiary of the trust that rents out the premises | 28.6% | 25% |
| Best Equity Pty Ltd | a listed investment company | 100% | 30% |
| SoftDev Pty Ltd | a software developer that sold its own office building | 85% | 30% |
| Hats 4 Cats Pty Ltd | a pet-accessory maker owned by a US multinational | turnover $170 million | 30% |
The rates are this test’s answers; each matches the one the ATO gives for its own example.
The rate you frank at is last year’s
The rate a company franks its distributions at — its “corporate tax rate for imputation purposes” — is worked out, the ATO says, by assuming this year’s aggregated turnover, assessable income and base rate entity passive income are the same as last year’s. So the two rates can part company. A business that crossed $50 million last year and fell back under it this year is taxed at 25% but franks at 30%; a company whose passive income was more than 80% of its assessable income last year, and is trading this year, is in the same position. A company that did not exist last year franks at 25%.
How the rate got to 25%
| Income year | Turnover threshold | Base rate entities | Other companies |
|---|---|---|---|
| 2017–18 | $25 million | 27.5% | 30% |
| 2018–19 to 2019–20 | $50 million | 27.5% | 30% |
| 2020–21 | $50 million | 26% | 30% |
| 2021–22 onwards | $50 million | 25% | 30% |
Frequently asked questions
Is a base rate entity the same as a small business entity?
Does a bucket company qualify?
Does interest on the business bank account count?
What rate does a brand-new company frank at?
Sources
- Income Tax Rates Act 1986 — Income Tax Rates Act 1986 s 23 (company rates), s 23AA (meaning of base rate entity) and s 23AB (base rate entity passive income). C2026C00300 (Compilation No. 66).
- ATO QC54063 — ATO — Changes to company tax rates: the tests, the rate history, five worked examples and the franking rule. Last updated 4 September 2026.
How this site verifies figures is on the methodology page.