ATO late lodgement penalty: up to $364 per 28 days, capped at $1,820 per document · interest 11.43% p.a. compounding daily · See how to remit them →
The two-part test, both limbs, every year
| Limb | Rule | Where it bites |
|---|---|---|
| Turnover | Aggregated turnover below $50 million, including connected entities and affiliates, so group structures aggregate | Rarely the problem for small and medium businesses |
| Passive income | No more than 80% of assessable income is base rate entity passive income: dividends and their franking credits, most interest, rent, royalties, net capital gains, and trust distributions to the extent they trace to passive income | The active limb. Trading companies pass easily; holding companies, landlord companies and corporate beneficiaries fail routinely |
Fail either limb in a year and the rate is 30% for that year. Pass both and it is 25%. The test re-runs annually, so a big asset-sale year (a capital gain is passive) can flip a normally-25% trading company to 30% for that one year. Worth modelling before you sign the sale contract, alongside the CGT position itself.
The trap cases
The franking flow-on that reaches your personal return
Your company franks dividends at its corporate tax rate for franking purposes, which follows the base rate test. So a 25% company attaches smaller franking credits per dollar than a 30% one. Shareholders on higher marginal rates pay slightly more top-up on 25%-franked dividends, a company whose rate changed between earning and distributing can find its franking account cannot fully frank at the new rate, and rate transitions are the classic source of over-franking errors.
None of it changes the headline. Retained profit at 25% still beats 47% in your hands. It just prices the eventual extraction accurately.
Compliance edge: the rate is self-assessed in the company return each year. Companies with unlodged years have not just deferred paperwork. Nobody has run the test, franked correctly, or priced the group's true position, and the catch-up re-runs all of it.
Frequently asked questions
What is the company tax rate in Australia?
What is a base rate entity?
What counts as base rate entity passive income?
Why does my investment company pay 30%?
Does the tax rate affect franking?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.