Property investors to miss out on low tax rate in new legislation push

Property investors to miss out on low tax rate in new legislation push
Property investors to miss out on low tax rate in new legislation push

Amendments being pushed through by Revenue Minister Kelly O’Dwyer will deny property and share investors the special low small business company tax rate.

The changes seek to prohibit firms that earn 80 per cent or more of their revenue from passive or investment income from claiming the lower tax rate. Tax experts say it will only add another layer to the complexity of the tax system and highlight avoidance opportunities.

O’Dwyer said the government’s decision to cut the tax rate for small companies was not intended for passive investment companies.

“The Turnbull government is committed to lower taxes on business because we want to see them invest and grow,” she said. “These amendments will provide greater clarity about who qualifies for the lower company tax rate.”

The legislation would mean companies that have a blend of investment and conventional business activities will have to carefully structure them for tax purposes.

Tax Institute senior tax counsel, Bob Deutsch was quoted by The Australian as saying that the new two-tiered company tax system would raise issues about which rate to apply in what circumstances.

“There may be questions about whether it is appropriate, for example, for all rent to be classified as passive income for this purpose. At a broader level, the need for a policy decision of this type highlights the inevitable complexity arising from a two-tier corporate tax rate system,” Professor Deutsch said.

Director of the Australian ­National University’s Tax and Transfer Policy Institute, Miranda Stewart, said the draft legislation introduced a concept to tax law of “base rate passive entity income”.

“Previously only those who worked in technical areas would have had to deal with concepts like this, but now small businesses and their advisers will have to come to grips with it,” she was quoted by The Australian.

“We now have another boundary line between predominantly passive income and active business income.”

KPMG tax partner Grant Wardell Johnson said it had long been obvious as soon as the low small business tax rate was announced that there would be problems with whether a company with passive investment income was “carrying on a business”.

“The government found it hard to accept that in political terms,” he said. “I welcome the government’s move to establish a ‘bright line’ test.”

Property Investors Tax Laws


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