Section 9 of Doing Business in Australia
The Australian tax system is considered to be one of the most complex in the world. We've put together a basic description of the top taxes that can affect your business.
These are not detailed representations of each tax law and you should seek professional advice based on your specific circumstances.
Income tax is levied on the taxable income of “taxable units”. Taxable entities generally include individuals, companies and limited partnerships (with the exception of certain venture capital limited partnerships). Non-taxable look-through companies generally include trusts and general law partnerships. Despite its name, taxable income is broadly the taxpayer's profits that are subject to various changes required by tax law.
The standard tax year is July 1st to June 30th (can be replaced with the approval of the Commissioner of Taxation).
Income tax rate
Companies: The income tax rate for companies is 30%, with the exception of companies with less than 50 million passive forms are taxed at 26% in the income year 2020-2021. This lower rate will be reduced to 25% for 2021-2022 and future income years.
Individuals: Individuals are taxed at marginal rates. The current maximum rate in Australia is 45% plus additional levies (such as the Medicare levy, if applicable) for those earning more than AU $ 180,000. Employers must withhold income tax on wages paid to employees.
Groups of qualifying companies may, in certain circumstances, choose to consolidate (i.e. group) for income tax purposes. Companies often choose to form a consolidated group as:
- only one income tax return per year is required per consolidated group;
- intra-group transactions are generally ignored for income tax purposes; and
- Tax losses of one group member can offset the income of another.
The advantages and disadvantages of a consolidation decision must be weighed carefully, as it usually leads to a recalculation of the tax assessment bases in the underlying assets of the group and can lead to taxable profits under certain circumstances.
Capital gains tax
Capital gains tax (CGT) is not a separate tax, but generally the income tax incurred on gains or losses calculated under the CGT rules in relation to “CGT Events” (essentially disposals and certain other events).
A sale of groups of companies that were acquired as part of a leveraged buyout or by a private equity company is usually made on the income statement (and is not subject to the CGT concessions).
Individuals and Pension Funds: Resident Individuals and Pension Funds are usually entitled to a 50% discount for individuals and 33⅓% for Fund compliance on capital gains in relation to CGT assets at least 12 months prior to the date of the CGT -Event will be held.
Non-residents: Non-residents are generally not subject to the CGT unless the profit relates to Australian land, interests in Australian land, or shares or rights in Australian land-rich companies. Australian land buyers, shares in Australian land, or shares or rights to acquire shares in Australian land-rich companies are required to pay 12.5% of the consideration payable to overseas sellers to the ATO (subject to certain exclusions and exceptions). This amount is usually deducted from the consideration otherwise to be paid.
Double taxation agreement (DTA)
In general, resident corporations are taxed on worldwide income, while non-resident corporations are only taxed on income from Australian sources. Australia has a sophisticated network of DTAs whose main role is to avoid double taxation of income for businesses.
Non-resident withholding taxes
Australia has withholding taxes on dividends (30%), royalties (30%) and interest (10%) on payments to non-residents. The withholding tax rates can be reduced due to a double taxation agreement or due to exceptions under national law.
In the case of dividends, distributions that are “prepaid” (i.e., paid out of after-tax profits) or that represent income from foreign operations (“i.e., conduit foreign income”) are generally not subject to withholding tax.
A reduced withholding tax rate of 15% (instead of 30%) applies to certain trust distributions ("i.e. fund payments") made by qualifying managed mutual funds or attributed managed mutual funds (withholding withholding MITs) to residents of information exchange countries. This rate is reduced to 10% if the holding MIT holds stakes in certain energy-efficient buildings. Fund payments exclude distributions of dividends, interest and royalties (which are subject to the standard withholding regime).
An exemption from withholding tax on interest also applies to interest paid on certain publicly offered debt securities.
Goods and services tax (GST)
GST is a federal sales tax on the supply of goods, services and all other things as well as the importation of goods. In general, a business must be registered for GST if it operates a business in Australia and its annual turnover is or exceeds $ 75,000. Registered businesses are required to pay 10% VAT on consideration received for their taxable supplies and imports (but it is common practice to contract the GST obligation on recipients) and can obtain input tax credits (i.e., refunds from GST) for the GST cost of its business purchases.
In addition, overseas companies may be required to pay GST for deliveries of digital products and other services to Australian consumers.
Stamp duty, levied by the governments of every state and territory, applies to a wide variety of transactions. The taxpayer depends on the type of tax.
A fee can be levied on the following transactions:
- Transfers and Other Transactions Relating to "Taxable Property"
- Transactions involving “landowners”
- Leasing instruments that are granted in return for a premium or other consideration
New South Wales, Victoria, Queensland, South Australia, Tasmania and Western Australia have an additional stamp duty on "foreign persons" (in the broadest sense including foreign corporations and trusts) who purchase residential property, either directly or indirectly through a real estate company.
Real estate tax, like stamp duty, is a state and territorial tax that levies a tax on investment real estate.
Higher property tax rates apply to non-residents who own property in certain jurisdictions.
Other taxes / fees
Some other taxes and fees include:
Ancillary service tax
There is an ancillary service tax (FBT) levied by the Commonwealth government on the taxable value of “fringe benefits” to employees. This is calculated at a flat rate of 47% after adjusting for GST credits on the extrapolated value of the service.
Each state and territory government levies income taxes, which vary by state and territory, and are subject to different exemptions and rates. For example, New South Wales has a payroll tax of 4.85% of taxable wages from July 1, 2020 through June 30, 2021, with an annual tax exemption of $ 1,200,000.
Death and donation obligations
There is no death or gift tax in Australia.
Customs, consumption and other taxes
The Australian government also imposes duties and excise taxes (on goods such as petroleum, alcohol and tobacco). State and territory governments also impose other taxes, including taxes related to gambling and motor vehicles.
Attracting foreign investors
In order to make Australia more attractive to foreign investors, the Australian government has introduced a number of attractive tax measures. These include:
CGT exemption for non-residents
Non-residents are generally not subject to Australian tax on the sale of interests in a company (held in capital accounts) unless the company's value is derived primarily from Australian real estate.
Managed mutual fund regime
Subject to integrity rules, non-residents who hold an interest in a qualifying withholding MIT are subject to final withholding tax of 15% (or 10% if the withholding MIT has an interest in certain energy efficient buildings).
Rules for Foreign Income from Lines
Subject to Integrity, no Australian tax (including withholding tax) is payable on certain foreign income ultimately received from a non-resident through one or more Australian intermediary corporation tax units.
Tax incentives for research and development (R&D)
Australia has an incentive program for companies making eligible spending on R&D activities. Depending on the size of a company, applicants under the R&D program may be eligible for one of the following incentives:
- For small businesses (combined sales of A $ 20 million or more): 43.5% refundable tax offset (i.e. cash).
- For other companies: 38.5% non-refundable tax compensation for eligible expenses below AU $ 100 million and 30% for eligible expenses above AU $ 100 million.
Significant changes have been made to the R&D tax incentive program that will apply from the first income year beginning on or after July 1, 2021. As part of the changes, companies with annual sales of less than 20 million will be able to have a refundable offset of 18.5% above the applicant's corporate tax rate, which will be 25% from July 1, 2021, resulting in a refundable tax offset of 43.5%. The changes also include the introduction of an "incremental intensity threshold", which is the non-refundable tax compensation for companies with annual sales of at least 20 million total operating expenses.
Venture capital investments
Australian venture capital investment vehicles can be structured as venture capital limited partnerships (VCLPs) or early stage venture capital limited partnerships (ESVCLPs) and receive tax breaks for eligible venture capital investments. For VCLPs, the benefits include tax exemptions for foreign investors (limited partners) on their share of income or capital gains generated by the VCLP when the investment is sold, as well as preferential treatment of the fund manager's carried interest in the VCLP. For ESVCLPs, the income tax exemption for VCLPs is extended to both resident and non-resident investors, and investors can receive a 10% non-refundable tax deduction on new capital invested in the ESVCLP.
There are incentives for eligible investments in start-ups that are designated as Early Stage Innovation Companies (ESICs), which are generally start-up businesses with low income and expenses. Investments of less than 30% of equity in an ESIC would generally qualify for a 20% non-refundable tax offset (maximum of A $ 200,000 per investor including any offsets from the previous year's investment) and a 10 year tax exemption on any capital gains on the sale of the Investment.
This guideline was last updated in April 2021.