Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018

Administered by Department of the Treasury

Legislation au C2018A00094 In force Act

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No. 94, 2018

An Act to amend the law relating to taxation, and for related purposes

Contents

1 Short title

2 Commencement

3 Schedules

Schedule 1—Main amendments

Part 1—Amendments applying from the 2017‑18 year of income

Income Tax Rates Act 1986

Part 2—Application of amendments

Schedule 2—Consequential amendments

Part 1—Amendments applying from the 2017‑18 income year

Income Tax Assessment Act 1997

Part 2—Contingent amendments

Income Tax Rates Act 1986

Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018

No. 94, 2018

An Act to amend the law relating to taxation, and for related purposes

[Assented to 31 August 2018]

The Parliament of Australia enacts:

1 Short title

This Act is the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018.

2 Commencement

(1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms.

Commencement information
Column 1	Column 2	Column 3
Provisions	Commencement	Date/Details
1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table	The day this Act receives the Royal Assent.	31 August 2018
2. Schedule 1, Part 1	Immediately after the commencement of Part 2 of Schedule 1 to the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017.	1 July 2017
3. Schedule 1, Part 2	The day this Act receives the Royal Assent.	31 August 2018
4. Schedule 2, Part 1	Immediately after the commencement of Part 2 of Schedule 1 to the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017.	1 July 2017
5. Schedule 2, Part 2	At the same time as Part 5 of Schedule 1 to the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Act 2018 commences. However, the provisions do not commence at all if that Part does not commence.	Never commenced

Note: This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act.

(2) Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act.

3 Schedules

Legislation that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.

Schedule 1—Main amendments

Part 1—Amendments applying from the 2017‑18 year of income

Income Tax Rates Act 1986

1 Subsection 3(1)

Insert:

base rate entity passive income has the meaning given by section 23AB.

2 Section 23AA

Repeal the section, substitute:

23AA Meaning of base rate entity

An entity is a base rate entity for a year of income if:

(a) no more than 80% of its assessable income for the year of income is base rate entity passive income; and

(b) its aggregated turnover (within the meaning of the Income Tax Assessment Act 1997) for the year of income, worked out as at the end of that year, is less than $25 million.

23AB Meaning of base rate entity passive income

(1) Base rate entity passive income is assessable income that is any of the following:

(a) a distribution (within the meaning of the Income Tax Assessment Act 1997) by a corporate tax entity (within the meaning of that Act), other than a non‑portfolio dividend (within the meaning of section 317 of the Assessment Act);

(b) an amount of a franking credit (within the meaning of the Income Tax Assessment Act 1997) on such a distribution;

(d) interest (or a payment in the nature of interest), royalties and rent;

(e) a gain on a qualifying security (within the meaning of Division 16E of Part III of the Assessment Act);

(f) a net capital gain (within the meaning of the Income Tax Assessment Act 1997);

(g) an amount included in the assessable income of a partner in a partnership or of a beneficiary of a trust estate under Division 5 or 6 of Part III of the Assessment Act, to the extent that the amount is referable (either directly or indirectly through one or more interposed partnerships or trust estates) to another amount that is base rate entity passive income under a preceding paragraph of this subsection.

(2) However, if an entity has assessable income that is interest (or a payment in the nature of interest):

(a) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) if:

(i) the entity is a financial institution (within the meaning of section 202A of the Assessment Act); or

(ii) the entity is a registered entity (within the meaning of the Financial Sector (Collection of Data) Act 2001) that carries on a general business of providing finance (within the meaning of that Act) on a commercial basis; or

(iii) the entity holds an Australian credit licence (within the meaning of the National Consumer Credit Protection Act 2009), or is a credit representative (within the meaning of that Act) of another entity that holds such an Australian credit licence; or

(iv) the entity is a financial services licensee (within the meaning of the Corporations Act 2001) whose licence covers dealings in financial products mentioned in paragraph 764A(1)(a) of that Act (securities), or is an authorised representative (within the meaning of section 761A of that Act) of such a financial services licensee; or

(v) the entity is an entity of a kind specified in a legislative instrument made under subsection (3); and

(b) treat the assessable income as not being interest (or a payment in the nature of interest) of the entity for the purposes of paragraph (1)(d) to the extent that it is a return on an equity interest in a company.

(3) The Minister may, by legislative instrument, specify one or more kinds of entities for the purposes of subparagraph (2)(a)(v).

Part 2—Application of amendments

3 Application of amendments

The amendments made by Part 1 of this Schedule apply to the 2017‑18 year of income and later years of income.

Schedule 2—Consequential amendments

Part 1—Amendments applying from the 2017‑18 income year

Income Tax Assessment Act 1997

1 Subsection 995‑1(1) (definition of corporate tax rate for imputation purposes)

Repeal the definition, substitute:

corporate tax rate for imputation purposes, of an entity for an income year, means:

(a) unless paragraph (b) applies—the entity’s *corporate tax rate for the income year, worked out on the assumptions that:

(i) the entity’s *aggregated turnover for the income year is equal to its aggregated turnover for the previous income year; and

(ii) the entity’s base rate entity passive income (within the meaning of the Income Tax Rates Act 1986) for the income year is equal to its base rate entity passive income for the previous income year; and

(iii) the entity’s assessable income for the income year is equal to its assessable income for the previous income year; or

(b) if the entity did not exist in the previous income year—the rate of tax in respect of the taxable income of a company covered by paragraph 23(2)(a) of the Income Tax Rates Act 1986.

2 Application of amendment

The amendment made by this Part applies to the 2017‑18 income year and later income years.

Part 2—Contingent amendments

Income Tax Rates Act 1986

3 Subsection 3(1) (definition of base rate entity passive income)

Repeal the definition.

4 Section 23AB

Repeal the section.

5 Application of amendments

The amendments made by this Part apply to the 2023‑24 year of income and later years of income.

[Minister’s second reading speech made in—

House of Representatives on 18 October 2017

Senate on 12 February 2018]

(242/17)

Overview

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018 was enacted by the Parliament of Australia to address the need for adjustments in the taxation system relating to base rate entities, particularly in response to the Enterprise Tax Plan. The Act aims to amend the law regarding taxation, and it commenced on 31 August 2018. It primarily modifies the definition and application of base rate entities in the Income Tax Rates Act 1986, and makes consequential amendments to the Income Tax Assessment Act 1997. The objective of these amendments is to refine the criteria for entities qualifying as base rate entities and to adjust the associated tax rates to promote a more equitable tax system for eligible businesses. The Act introduces specific changes to the definition of base rate entity passive income and modifies the conditions under which an entity qualifies as a base rate entity. By limiting the proportion of passive income an entity can have and setting a turnover threshold, the Act ensures that only certain small to medium-sized enterprises benefit from the preferential tax rates. Additionally, the Act's consequential amendments to the Income Tax Assessment Act 1986 ensure that the tax system remains coherent and that the new definitions and criteria are correctly applied across relevant legislative provisions. These changes are intended to provide targeted tax relief to base rate entities, aligning with the broader policy goals of supporting business growth and economic stability.

Scope and Application

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018 is a Commonwealth Act that amends the law relating to taxation, particularly focusing on entities classified as base rate entities. This Act applies to entities with an aggregated turnover of less than $25 million and where no more than 80% of their assessable income constitutes base rate entity passive income, as defined. The Act amends the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1997 to redefine and limit the scope of base rate entities, affecting their tax rates. The changes commenced in stages, with certain provisions taking effect from 1 July 2017 and others from 31 August 2018. The Act also includes consequential amendments to ensure consistency across related legislation. This legislation applies nationally across Australia, impacting entities in various industries who must comply with the new definitions and thresholds for tax purposes.

Key Provisions

The Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Act 2018 amends the Income Tax Rates Act 1986 and the Income Tax Assessment Act 1997 to modify the definition and application of base rate entities, particularly focusing on passive income and aggregated turnover. Section 1 of Schedule 1, Part 1, introduces a new definition of "base rate entity passive income" (subsection 3(1)) and specifies the conditions under which an entity qualifies as a base rate entity (section 23AA). This includes the stipulation that no more than 80% of the entity's assessable income can be base rate entity passive income, and that the entity's aggregated turnover must be less than $25 million. The Act also revises the definition of base rate entity passive income to include distributions, franking credits, non-share dividends, interest, royalties, rent, gains on qualifying securities, and net capital gains (section 23AB). Certain types of income, such as interest, are excluded if the entity is a financial institution or holds specific licenses or authorisations. The obligations imposed by the Act on entities include ensuring that their assessable income is properly classified in accordance with the new definitions and thresholds. Entities must accurately determine their base rate entity status and comply with the new passive income limitations and turnover caps. Additionally, entities must maintain records and documentation to substantiate their income classifications and aggregated turnover calculations for tax purposes. This involves meticulous record-keeping and adherence to the statutory definitions provided in the Act. Breaches of the provisions in the Act can result in civil or criminal consequences, depending on the nature and severity of the violation. For instance, providing false or misleading information to the Australian Taxation Office (ATO) can lead to penalties under the Taxation Administration Act 1953. The penalties for providing false or misleading information can include fines of up to $1,800 for individuals and $9,000 for entities, as well as potential criminal charges. The Act also includes provisions for the ATO to adjust tax assessments, recover unpaid taxes, and impose additional penalties for non-compliance. The specific penalties and consequences for breaches are outlined in the relevant taxation legislation, which the ATO administers.

Area of Law: Taxation Law
Instrument: Act
Concepts: Commencement Provisions; Offence Provisions; Repeal & Amendment

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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