Question:
Could you please confirm what company rate is applicable on the following?
Distribution from a Family Trust to a Company. All income is from a trading business within the Trust.
As more than 80% of the income, being distributed from the discretionary trust to the company is not passive income.
Can you please advise what tax rate is applicable if the trading distribution is from a unit trust?
Also, can you confirm that the company tax rate in this scenario is at 27.5% for the year 2020?
Answer
For the year ended 30 June 2020 the company tax rate for base rate entities is 27.5% (26% in 2021).
To be a base rate entity your turnover must be less than $50 million and…no more than 80% of your income can be passive income.
Receiving a discretionary distribution is passive income.
If the company does not qualify as a base rate entity, then the normal 30% company tax rate applies. Given more than 80% of the income is a discretionary trust distribution and as outlined this is passive income…
The situation here is that income retains its character as it flows through a trust.
This the case whether it is a unit (fixed) or discretionary trust.
Due to this, it is possible for a company receiving a distribution from a trading trust to be a base rate entity.
Since this was TRADING income, we confirm that in the year ended 30 June 2020 the applicable tax rate is 27.5%.