Australia Business Services Overview About Australia Setting up a Business in Australia
This section is a summary providing a brief outline of Australian taxes. It should not be considered as being formal tax advice and each person's or corporations specific situation should be referred to a qualified taxation practitioner such as a lawyer or an accountant holding a current Australian practising certificate.
An Australian company (which is a deemed resident) or an Australian resident individual, is liable to pay Australian tax on all of its worldwide assessable income less allowable deductions. Foreign tax credits are allowable where provided for.
Income Tax Returns are lodged for each year ending 30 June. Unless they are prepared by a Registered Tax Agent, they must be lodged by 31 October in each year. If an Australian company is a subsidiary of an overseas company, a substituted accounting period may be granted, upon application, by the Australian Taxation Office ("ATO") to unify its year end with that of its overseas parent company.
The general corporate tax rate is 30%.
Capital assets held by an Australian resident company will generally be liable for tax on any capital gain on their disposal at the corporate tax rate, i.e. 30%.
If fully franked dividends (i.e. dividends derived from profits on which Australian corporate tax has been paid) are paid by an Australian subsidiary to its foreign parent, no dividend withholding tax is payable. To the extent that dividends are unfranked, dividend withholding tax of 30% (or as reduced under the relevant double tax treaty) is payable on the gross unfranked amount.
Interest withholding tax of 10% is imposed on interest paid by an Australian company to a foreign non-resident lender entity. If, however, the beneficial owner of the interest has a permanent establishment in Australia and the interest is effectively connected with the permanent establishment, such interest is taxable by assessment in Australia.
If an Australian company pays royalties to a foreign resident, the royalties will be subject to royalty withholding tax at the rate of 30% (or as reduced under the relevant double tax treaty) and may give rise to transfer pricing issues.
Australian transfer pricing rules are quite stringent and are a major issue with the Australian Taxation Office.
In most cases related party cross-border transactions are required to be disclosed to the Tax Authorities on filing of a tax return. Australia adopts the arm's length concept as promulgated by the OECD.
Residents of Australia are subject to Australian income tax on their worldwide income and capital gains.
Medicare is Australia's universal health insurance scheme. Contributions to the health care system are made through taxes and a Medicare Levy. The levy is 1.5% of taxable income or 2.5% if private hospital insurance is not maintained by higher income earners. An exemption from the Medicare levy is available to expatriates, low income earners, and some other taxpayers meeting certain requirements.
residents may be subject to an accruals taxation system in respect of investments in certain foreign trusts, controlled offshore companies and interests in certain foreign investment funds and foreign life assurance policies. Generally, expatriates are exempt from this regime for the first four years of their time in Australia.
there is a requirement for each employer to make a compulsory contribution into an Australian approved retirement fund on behalf of each employee (excluding certain senior expatriate executives). The amount is currently 9% of salary.
This tax applies to most non-cash benefits provided by an employer to an employee or an associate of an employee, previous employee or future employee.
The main areas generally affected by this tax are motor vehicles provided to employees, low or no interest loans, payment or reimbursement of private expenses.
Fringe benefits are not taxable in the employee's hands. Instead, a separate tax collection procedure applies to fringe benefits, known as Fringe Benefits Tax (FBT), which is levied on the employer at the highest marginal tax rate.
Capital gains that have been derived on the disposal by sale, or otherwise, of assets acquired after 19 September 1985 are generally included in assessable income. Effective 21 September 1999, where the asset is held for more than 12 months (from the later of the date of entry to Australia or date of acquisition) only 50% of the net capital gain is assessable. There are no special rules that apply to valuation of assets for capital gains tax where an individual becomes a tax resident for the first time. The aim is to generally not tax any capital appreciation arising before becoming an Australian tax resident. Also, the disposal of a principal residence is generally not subject to capital gains tax.
A broad based goods and services tax (GST) has applied in Australia since 1 July 2000. The GST is based on the value added tax (VAT) model adopted in most countries around the World. Its effect is a tax of 10% on the consumption of most goods, services and property in Australia, including those that are imported, but generally it will not apply to exports of goods or services consumed outside Australia.
Land Tax is levied by each State Government and the Australian Capital Territory on the unimproved capital value of the land at varying rates that increase according to the value of the property. Usually the land tax liability arises for land owned at a particular date, which in New South Wales, is at midnight on 31 December in each year.
Payroll Tax is levied on employers. This is a State tax, and the rates vary between the States, as do the rules regarding exactly what income is liable to Payroll Tax. The current New South Wales rate of payroll tax is 5.45%. This applies whether or not an individual is paid from a foreign or from a local payroll.
There are exemptions for small payrolls. Currently in New South Wales the exemption level is $678,000.
There are effectively no inheritance taxes.