For companies operating in Australia, the end of the financial year on 30 June is not just a date on the calendar — it is a critical compliance milestone that comes with significant obligations, meaningful planning opportunities, and real financial consequences for those who are underprepared. From understanding which company tax rate applies to your entity, to managing franking credits, Division 7A loans, and transfer pricing, corporate tax demands careful attention to detail and a proactive approach well before the year closes.
The Two Corporate Tax Rates: Which One Applies to Your Company?
Australia’s corporate tax regime operates on two rates for the 2025–26 income year. The standard rate is 30%, which applies to all companies that are not eligible for the lower rate. The lower rate of 25% applies to companies that qualify as a “base rate entity.”
A company is a base rate entity for the 2025–26 income year if it meets two conditions: first, its aggregated turnover for the year is less than $50 million; and second, no more than 80% of its assessable income is “base rate entity passive income.” Base rate entity passive income includes dividends (other than non-portfolio dividends), interest, royalties, rent, and net capital gains. This passive income test is important — a company that primarily earns investment income rather than trading income may find itself ineligible for the lower rate, even if its turnover is well below $50 million.
This distinction has practical implications beyond the tax rate itself. It also affects the maximum franking rate a company can apply to its dividends. A company taxed at 25% cannot frank dividends at 30%, even if it paid tax at 30% in prior years. Getting the franking rate right is essential for shareholder compliance and avoiding ATO scrutiny.
Franking Credits and Dividend Planning
Franking credits — also known as imputation credits — are one of Australia’s most distinctive corporate tax features. When a company pays Australian income tax and then distributes a dividend to shareholders, it can attach franking credits representing the tax already paid at the corporate level. Australian resident shareholders can then use those credits to offset their own income tax liability, with any excess franking credits potentially refundable.
For company directors and shareholders, particularly those in closely held companies, dividend timing and franking account management are important considerations at year end. You should review your franking account balance before 30 June to understand how much franked dividend you can distribute. Distributing a dividend with incorrect franking — either over-franking or under-franking — can attract ATO penalties.
In wholly-owned corporate groups, the consolidation regime allows eligible groups to lodge a single income tax return and pool franking credits. Consolidation is optional but irreversible, and the decision requires careful consideration of both current and future tax positions.
Division 7A: The Loan Trap That Catches Companies Out
Division 7A of the Income Tax Assessment Act 1936 is one of the most commonly misunderstood areas of corporate tax, and one of the ATO’s most active compliance areas for private companies. It is designed to prevent private company profits from being distributed tax-free to shareholders or their associates under the guise of loans, forgiven debts, or payments.
If a private company makes a loan to a shareholder or an associate of a shareholder (including related parties) and the loan is not repaid or put on a complying loan agreement by the time the company lodges its tax return, the amount is treated as a deemed unfranked dividend — meaning it becomes fully assessable income in the hands of the recipient, with no franking credits to offset the tax.
Complying Division 7A loan agreements require a minimum interest rate and a maximum repayment period (generally seven years for unsecured loans, or 25 years for loans secured by a real property mortgage). Reviewing all related-party loans before 30 June and ensuring minimum repayments are made is essential — and this is an area where professional advice can save a great deal of money and stress.
Transfer Pricing and Related-Party Transactions
For companies that operate across multiple entities — whether in Australia or internationally — transfer pricing rules require that transactions between related parties are conducted at arm’s length. This means the pricing of goods, services, loans, and intellectual property licences between related entities must reflect what independent parties would have agreed to in similar circumstances.
The ATO has significantly increased its focus on transfer pricing in recent years, particularly for privately owned and multinational groups. If your company has intercompany charges, management fees, or cross-border transactions, it is critical to have contemporaneous documentation supporting the pricing. Penalties for transfer pricing adjustments can be severe, and the ATO’s international data-sharing arrangements mean compliance is more visible than ever.
Tax Consolidation, Losses, and Planning Ahead
Companies that have carried forward tax losses can generally offset them against future income — but the tax loss rules require that either the continuity of ownership test or the same business test is satisfied. If your company has changed ownership significantly or shifted its business activities, you should seek specific advice before assuming prior losses are available.
Year-end tax planning for companies often includes reviewing the timing of income and deductions. Accelerating deductible expenses before 30 June or deferring income to the next financial year can shift the tax liability, though care must be taken to ensure that arrangements are genuinely commercial and not solely tax-motivated. The ATO’s general anti-avoidance rules (Part IVA) can apply to arrangements with no substantive commercial purpose beyond obtaining a tax benefit.
Lodgement Obligations and PAYG Instalments
Company income tax returns are generally due on 15 May for companies with a 30 June balance date if lodging through a tax agent. The ATO operates a lodgement program that tax agents manage, so it is important to engage your accountant well before year end to understand your specific deadline.
PAYG instalments — quarterly prepayments of expected income tax — are also a critical obligation for companies. If your instalment amounts no longer reflect your current year income (for example, due to a decline in profitability), you may be able to vary your instalment to avoid overpaying or underpaying throughout the year.
The Strategic Value of Corporate Tax Advice
Corporate tax is not an area where guesswork is appropriate. Errors in company tax rates, franking accounts, Division 7A, or transfer pricing can result in substantial ATO adjustments, penalties, and interest — and can have cascading effects on shareholders and related entities.
At JR Corporate Accountants, we work with company directors and finance teams to ensure corporate tax obligations are met accurately and on time, legitimate planning opportunities are identified, and the overall tax position of the business is optimised within the law. From lodgement and compliance to complex restructuring advice, we have the expertise to support your business at every stage.
Contact JR Corporate Accountants today for a free consultation about your company’s 2025–26 tax position. The earlier you plan, the better your outcome.
This article contains general information only and is based on ATO guidance current as at June 2025. Please seek professional advice for your specific circumstances. Source: Australian Taxation Office (ato.gov.au)