While the Government introduced a Bill to Parliament back in October 2017 which seeks to change the rules in this area, the Bill is still not yet law. As a result, it looks like we will need to apply the existing provisions for determining company tax rates and maximum franking rates (which are based on whether the company carries on a business), but also to be aware that the position might change if and when the Bill passes through Parliament.
Under current rules, a company would be subject to a 27.5% tax rate if it carries on a business (which could include investment activities as long as there is a genuine expectation of making a profit) and the aggregated turnover of the company and certain related parties is less than $25m.
If the Bill passes in its current form then the tax rate and maximum franking rate position will depend on whether more than 80% of the company's income is passive in nature (e.g. interest, rent, etc.). If more than 80% of the company's income is passive in nature, then a 30% tax rate should apply. The $25m aggregated turnover test will also need to be applied.
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