Base rate entity review checklist for Australian company tax returns
The base rate entity test looks simple on the return, but it is easy for the conclusion to be carried forward without checking whether the current year's facts still support it.
For most companies, the practical consequence is the difference between the 25% base rate entity company tax rate and the 30% general company tax rate. The result can also interact with the company's franking position because the corporate tax rate for imputation purposes is determined under a related but different rule.
This checklist is designed for the review stage of an Australian company tax file.
Published 23 August 2026. Last reviewed 23 August 2026. Technically reviewed by the Taxpartna tax team.
The core base rate entity test
A company is generally a base rate entity for an income year if both of the following are satisfied:
- 1its aggregated turnover is less than $50 million; and
- 2no more than 80% of its assessable income is base rate entity passive income.
The test should be considered for the current year using the current year's income and turnover position.
Review checklist
1. Confirm the company is subject to the ordinary company rate rules
Before applying the standard test, confirm the company is not within a category subject to a specific tax rate or special rule.
The file should make clear why the ordinary 25% or 30% company rate framework applies.
2. Recalculate aggregated turnover for the year
Do not rely only on the turnover shown in the company's own profit and loss statement.
Check:
- the company's annual turnover
- connected entities
- affiliates where relevant
- changes in ownership or control during the year
- acquisitions or disposals that may affect the group
- whether turnover amounts have been calculated consistently with the aggregation rules
For groups with multiple entities, retain a short calculation or group schedule supporting the threshold conclusion.
3. Identify assessable income for the BREPI calculation
The passive income test uses assessable income, not accounting revenue.
The review should identify the relevant assessable income components and then determine which are base rate entity passive income.
Potential BREPI categories include:
- dividends other than qualifying non-portfolio dividends
- franking credits associated with relevant dividends
- non-share dividends
- interest, subject to relevant exceptions
- royalties
- rent
- gains on qualifying securities
- net capital gains
- trust and partnership distributions to the extent they are directly or indirectly referable to BREPI
A company with only a small amount of accounting investment income can still warrant a proper calculation if assessable income is low or unusual.
4. Check trust and partnership distributions carefully
This is an area where a simple ledger review can be misleading.
A distribution from a trust or partnership can be BREPI to the extent it is referable, directly or indirectly, to income that would itself be BREPI.
Where the company receives a material distribution, check whether the file contains enough information to understand its character for the BREPI calculation.
If the source information is not available, flag that as a missing evidence issue rather than assuming the whole amount is active or passive. Our guide on how to review an incomplete tax file sets out a practical way to record that kind of gap.
5. Consider non-portfolio dividends separately
Not every dividend is automatically BREPI.
The legislation excludes non-portfolio dividends from the relevant dividend category. Where a company receives a material dividend from an entity in which it has a significant ownership interest, confirm whether the non-portfolio dividend rules have been considered and documented.
6. Calculate the passive income percentage
The file should show the calculation, not simply the conclusion.
A useful workpaper identifies:
- total assessable income
- total BREPI
- BREPI as a percentage of assessable income
- whether the percentage is 80% or less
If the company sits close to the threshold, review classifications carefully and retain the supporting analysis.
7. Confirm the company tax rate used in the return
Once the current year base rate entity status is established, confirm that the tax rate applied in the company tax calculation is consistent with that conclusion.
For ordinary companies, a base rate entity is generally taxed at 25%. Other companies are generally taxed at 30%.
Check that the same rate has been used consistently in:
- the tax provision
- the tax reconciliation
- the company tax return
- deferred tax or accounting entries where relevant
- tax payment estimates provided to the client
8. Do not confuse the tax rate with the franking rate
The corporate tax rate for imputation purposes is not always the same as the company's current-year tax rate.
For franking purposes, the company generally works from assumptions based on the previous income year's aggregated turnover, assessable income and BREPI.
This means a company can be taxed at 25% for the current year but have a 30% corporate tax rate for imputation purposes, or the reverse, depending on the prior-year facts and the rules that apply.
The base rate entity review should therefore link to, but not replace, the franking review.
9. Compare with the prior year
A change in status is not necessarily an error, but it should be explainable.
If the company moved from 25% to 30% or from 30% to 25%, identify why.
Common reasons include:
- turnover moving above or below the threshold
- a business sale or acquisition
- a large capital gain
- increased interest or rental income
- a trust distribution with passive components
- a change in the connected entity group
An unexplained change is a useful review flag.
10. Check the disclosure in the company tax return
Confirm that the return's base rate entity status and related labels agree with the workpaper conclusion and tax calculation.
The final file should tell the same story across the tax return, financial statements and supporting workpapers.
A compact reviewer checklist
- Aggregated turnover recalculated for the current year.
- Connected entities and affiliates considered.
- Assessable income identified for the BREPI test.
- Dividends classified correctly.
- Interest, rent, royalties and capital gains considered.
- Trust and partnership distributions traced where material.
- BREPI percentage calculated and retained.
- Current year company tax rate agrees with the conclusion.
- Corporate tax rate for imputation purposes reviewed separately.
- Prior-year change explained.
- Tax return disclosure agrees with the workpaper.
Where Taxpartna fits
Base rate entity review is well suited to a combination of document reading and fixed calculation logic.
Taxpartna can assist by locating relevant turnover and income information across the file, comparing the treatment between workpapers and the return, and flagging missing or inconsistent information for the practitioner to assess. It sits alongside the broader tax return review checklist for accountants and works as tax workpaper review software.
The practitioner remains responsible for the legal character of income, connected entity analysis and the final base rate entity conclusion.
Authoritative sources
Base rate entity conclusions depend on the company tax rate rules and the base rate entity passive income definition. The following primary sources should be checked when this page is technically reviewed or materially updated.
- ATO - Changes to company tax rates
- ATO - Base rate entities and base rate entity passive income
- Federal Register of Legislation - Income Tax Rates Act 1986
Frequently asked questions
For the current framework, aggregated turnover must be less than $50 million, together with satisfying the passive income test.
Important information. This checklist is general information only and is intended to support professional review. It does not replace the legislation, ATO guidance or the registered tax practitioner's judgement. Taxpartna is a quality assurance assistance platform and does not provide tax advice, prepare returns or give final sign-off.