William Buck Australia
As a fully integrated firm of Chartered Accountants and advisors, William Buck provides a complete solution. Putting you at the core of the business, our advisors work together to ensure that careful consideration is given to your business and personal wealth affairs.
Working closely with you and your team, our Business Advisors can help you plan and implement contemporary business strategies and practices to meet your business’s full potential.
Our commercially minded tax specialists offer clear, responsive advice to manage your tax risk, address local and international issues, and develop strategies to optimise your tax position.
Our audit team has extensive experience in a range of engagements, giving stakeholders independent and objective assurance on financial information, transactions and processes.
Our Corporate Advisory team provides objective, strategic and commercial advice across a broad range of business issues. Our work spans the breadth each engagement from the origination of ideas to managing the transaction process, valuation and structuring.
Our highly experienced team of liquidators and trustees use their extensive expertise to assist in times of financial distress, achieving the best outcome for all stakeholders.
By understanding not only what you want to achieve but why it’s important, our wealth advisors can create strategies attuned to your key priorities. The end result is a plan focused on your life goals.
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William Buck has a team of professionals with specialist experience and know-how on a range of industry sectors.
Our advisors understand the risks and opportunities unique to the agribusiness sector. Taking a strategic view of your operations they provide relevant guidance and advice.
Assisting public and private schools, vocational colleges, universities and private training providers, our education specialists provide timely and valuable assurance services together with strategic, financial and management advice.
Our Government and public sector team has substantial experience in assisting all levels of government to review their structures and develop strategies, in line with relevant legislative requirements and accounting and audit standards.
Working with over 1,600 clients in the health sector, our advisors help practitioners and health care corporates achieve their business and personal goals
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By staying on top of changes in the manufacturing sector, our industry experts provide relevant and timely guidance to a broad range of manufacturing business.
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Integrity and transparency are at the heart of the best Not for Profit organisations. These values re shared by our dedicated Not for Profit team, which helps entities to establish to improve performance and develop strategies for long-term growth.
Our advisors understand the challenges and opportunities facing the professional services sector first hand. This experience together with our expertise helps to determine your strategic objectives and provide concise, relevant advice to help you achieve your goals.
Our property and construction team assist on a wide range of assignments from property development to construction and large infrastructure projects. Their diverse experience, technical expertise and commercial know-how to help you tackle the important issues.
Our retail and wholesale team works with a variety of businesses from family owned operations to franchises and larger chains, to provide advice and guidance on the issues that count.
Our transport and distribution team works with businesses to review their operations, improve efficiency and productivity and ensure compliance with the latest regulatory developments.
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We work with individuals, businesses and community organisations with a particular focus on the mid-market. Drawing on our extensive experience, our advisors will challenge your thinking and re-frame problems to understand their root-cause.
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By TODD WANT
With all the media attention on whether the company tax cuts will pass through Parliament, you’d be forgiven for wondering what tax rate applies to your company, or your client’s company. Should the company pay tax at the rate of 30%, or should it be 27.5%?
It’s even more confusing if the company pays a dividend. Does it frank using the 30% rate or the 27.5% rate? Could there be a difference between the rate used to calculate tax payments and the rate used for calculating franking credits?
This article unlocks the myths surrounding which tax rates and franking rates apply for 2018.
Why the confusion?
Much of the media hype in recent times has surrounded whether big businesses will get a reduction in their rate of tax from 30% to 27.5%. The important distinction is that this is a future tax rate cut, not something applying for the 2018 year.
What has received less media attention is a separate measure before Parliament to clarify whether companies earning passive style income (such as interest, dividends or rent) qualify to pay tax at the lower rate of 27.5%, or the standard 30% rate.
What does the law currently say?
The tax law currently provides that if a company is a ‘base rate entity’ for the 2018 year, it will pay tax at the rate of 27.5%, while other companies pay tax at 30%. A ‘base rate entity’ is defined as a company that:
Similarly, to determine what rate the company can frank dividends at, it uses the above methodology, but instead of looking at the current year (2018) aggregated turnover, the company looks at its prior year (2017) aggregated turnover. Hence, if in the prior year turnover was below $25 million (or the company did not exist in 2017), the company will frank dividends paid in 2018 at 27.5%.
The reason for the confusion with the current law is that when the tax cuts for ‘base rate entities’ passed Parliament last year, the Government intended that they would apply for businesses that actively traded – those businesses who employed staff, and bought and sold goods and services. However, the legislation didn’t explicitly state that limitation. This led to the ATO interpreting the tax cut as applying to nearly all companies (on the basis that most companies would be carrying on a business), irrespective of whether their earnings were from running an active trading business, or from passive investment earnings.
Because of this confusion, the Government recently introduced a bill to Parliament to clarify what types of companies could access the lower tax rate. Importantly though, this bill has not yet passed through Parliament and is therefore not yet law
How would the proposed changes impact the tax rate?
The proposed changes, which would apply for the 2018 year onwards, seek to modify the definition of a ‘base rate entity’ to be an entity that has:
The ‘base rate entity passive income’ concept is specifically defined and includes amongst other items interest, royalties, rent, net capital gains, certain dividends and certain trust distributions.
For franking of dividends paid in 2018, it is proposed that if the above test was passed based on the company’s 2017 results, it will frank dividends at the 27.5% rate in 2018 i.e.:
Given the way the company tax rate and franking rates are determined, it will not be an unusual situation for a company to pay tax at one rate (say 30%) but frank at a different rate (say 27.5%). Without careful planning, this could lead to extra tax being paid or franking credits being wasted. Conversely, it may be possible to frank at a higher rate than the company paid tax at, resulting in a tax benefit being achieved.
What should I do?
Given that the above changes have not yet passed parliament, it makes it difficult at this point in time for many companies (particularly those which earn some passive style income, including corporate beneficiaries) to determine whether the 27.5% or 30% tax rate or franking rate applies to them during 2018.
If the proposed changes are likely to impact on tax planning or dividend payment decisions, then a ‘wait and see’ approach is recommended. With Parliament sitting again during May and June 2018, it is hoped that a final position is arrived at well before year end.
Companies should also bear in mind that the $25 million threshold for the lower tax rate in the 2018 year increases to a $50 million threshold for 2019, as that piece of legislation has already been passed and is law. Accordingly, those mid-sized companies may have significant planning opportunities available during the current year, which will cease after year end.
If you are in any doubt as to how the tax rates or franking rates apply to your company, or your client’s company, or you would like to explore the associated tax planning opportunities, please contact us.
Disclaimer: The contents of this article are in the nature of general comments only, and are not to be used, relied or acted upon without seeking further professional advice. William Buck accepts no liability for errors or omissions, or for any loss or damage suffered as a result of any person using, relying on, or acting upon the comments, information and ideas contained in this article. Liability limited by a scheme approved under Professional Standards Legislation.