The tax rates for an entity in Australia will be different depending on the type of entity used.
We will go over the rates for the most often used structures.
We will review the following 7 entities:
- Discretionary or family Trust
- Unit Trust
- Self Manager Superannuation Fund (SMSF)
- Joint Venture
Individual tax rates
Individual rates tend to be different each year. For the 2021 financial year, the rates were:
These may also need to be paid:
- Medicare Levy (ML); and
- Medicare Levy Surcharge (MLS)
The Medicare Levy rate is 2%
See the table below for the MLS rate:
The thresholds above increase by $1,500. This is to say, for each dependent child after your first kid.
Click here to check the historical individual rates.
Click here to check the historical MLS rates.
A partnership needs to complete a tax return. With that said, the partnership does not itself pay tax. In addition, the partners pay tax if applicable. In other words, if the partner is an individual then they will pay tax. Whereas, if the partner is a trust then the trustee or the beneficiary of that trust is likely to pay the tax.
Company Tax Rates
The company is the most used business entity.
As a result, the rate for a trading company, which is a based rate entity, in the 2022 financial year is 25%. However, if the company is not trading and is not a base rate entity, then the rate is generally 30%.
Subsequently, To learn more about establishing a business click here.
Also, you can check the company rates now by going to the ATO website which speaks more about Changes to company rates.
Discretionary Trust/Family Trust
This entity is not taxed if the beneficiaries are entitled to all the income of the trust. Consequently, If this is not the case, the trustee will be taxed at the highest individual marginal rates.
In addition, the trustee will pay the MLS.
The ATO does not assess this type of entity. Therefore, unit holders may have to pay tax depending on the type of entity they are. That is to say, the unit holder may be a discretionary trust with one individual beneficiary. As a result, the individual beneficiary will be taxed but not the discretionary trust.
Likewise, a partnership unit holder will not pay tax either but the partner’s will pay tax if they are a company, self managed superannuation fund or individual.
Self Managed Superannuation Fund/SMSF Tax Rates
An SMSF pays tax at 15%. For this to happen, it must be a complying fund.
Further, a complying fund receives a capital gains discount of one third when it holds property for at least 12 months. This amount is then added to the assessable income on which it pays 15% income tax.
The tax authorities don’t tax joint ventures. Further, members must avoid receiving income jointly for this to take place. For example, receiving income jointly is raising an invoice as the joint venture.
Speak with us now
Understanding various tax rates and how the array of entities work together to reduce tax is complex.
Contact us if you require assistance. We offer you a free initial discovery session to see how we can support your big vision.
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