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ATO clarifies contentious business definition


The ATO has now updated its website in order to clarify its stance on whether a company is carrying on a business or not, and therefore its inclusion under the corporate tax rate reduction.

By Lara Bullock 11 minute read

The ATO’s interpretation of whether a company is carrying on a business or a not came into the limelight last week with confusion over whether the corporate tax rate cuts will apply to passive investment companies.

The Minister for Revenue and Financial Services, Kelly O’Dwyer, made a statement last week confirming that ATO has issued a draft ruling, and will provide further guidance in due course.

“As always it is up to the ATO to determine how the law applies and in this case whether a company is carrying on a business or not,” Minister O'Dwyer said.


“However, the policy decision made by the government to cut the tax rate for small companies was not meant to apply to passive investment companies.”

Following requests from tax professionals for guidance on how to determine when a company carries on a business, the ATO told Accountants Daily it has updated its website and intends to offer further guidance in August.

“We have updated our website with material on the ATO’s view as to when a company will carry on a business,” an ATO spokesperson told Accountants Daily.

“We are currently consulting with tax practitioners about further guidance on this topic which we intend to issue in August.”

While disclosing that it is not possible to definitively state whether a particular company is carrying on a business, the ATO says the activities of a company should give an indication of whether a business is carried on.

“Where a company is established and maintained to make profit for its shareholders, and invests its assets in gainful activities that have a prospect of profit, then it is likely to be carrying on business,” the ATO website reads.

“This is so even if the company’s activities are relatively passive, and its activities consist of receiving rents or returns on its investments and distributing them to shareholders.”

Minister O’Dwyer said that if the ATO requires further direction on the government's policy intention it will be provided.

“At the end of the day the government wants to see lower taxes on small and medium businesses,” she said.

Lara Bullock


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