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Australia Publishes Draft Tax Ruling on When a Base Rate Entity is Considered to Carry on a Business — Orbitax Tax News & Alerts

On 18 October 2017, the Australian Taxation Office (ATO) published Draft Taxation Ruling TR 2017/D7 on when a company is considered to carry on a business within the meaning of section 23AA of Income Tax Rates Act 1986. Section 23AA concerns when an entity is a "base rate entity" for the purpose of the reduced corporate tax rate from 2017 ({News-2017-05-26/A/2-previous coverage}). Comments are due by 1 December 2017.


Draft Taxation Ruling TR 2017/D7: Income tax: when does a company carry on a business within the meaning of section 23AA of the Income Tax Rates Act 1986? provides guidance on when a company carries on a business. The draft Ruling confirms that it is not possible to definitively state whether a company is carrying on a business. It does however confirm that Limited and No Liability companies are likely to be carrying on a business where they are established and maintained to make a profit for their shareholders, and invest their assets in gainful activities which have both a purpose and prospect of profit.

The draft Ruling addresses whether a company carries on a business in a general way. It does not address what the scope or nature of a company's business is. This is a separate question that needs to be answered in order to work out the taxation consequences of the transactions a company undertakes, such as whether a gain made is ordinary income or a capital gain, or whether an outgoing or loss is capital in nature.

The draft Ruling is open for comment until 1 December 2017.