This issue:
- Introduction to Australia's taxation structure
- Federal Taxes and Rates
- State-based Taxes
One of the major challenges facing any business wanting to tap into the Australian market is its complex federal taxation system. Prior to taking the plunge into the Australian market, it is imperative for the astute inbound investor to understand Australia's complex tax regime in simple terms.
This issue of Expanding Business into Australia takes a broad look at these major taxation obligations and rates which are addressed in turn. We start, however, by first considering some basics of Australia's taxation system.
Australian Taxation 101
Tax Structure
Australia operates under a federal system of government where the power to govern is shared between a centralised Federal Government and numerous State/Territory Governments. This has implications for Australian taxation law. Whilst most Australian taxes are levied at the federal level some additional state/territory-based taxes may also be imposed upon certain transactions or dealings.
Tax Administration
At the Federal level, the Australian Taxation Office (ATO) is the principal revenue collection agency of the
Australian Government. It has the responsibility of administering the Australian taxation and superannuation systems. Its secondary roles include monitoring compliance with taxation law through audit activity, publishing various pronouncements on its interpretation and application of the tax law and above all maintaining the integrity of Australia's taxation system.
State/Territory revenue offices perform a similar function in relation to State/Territory-based taxes.
The Financial Year
Australia's financial year is the 12 month period between 1 July and June 30 each year. Generally speaking, most entities operate under this financial year for accounting and taxation purposes.
For many inbound investors the Australian financial year may not coincide with your own, particularly where you operate under a calendar year like various EU nations and China. Given this inconvenience for compliance and administrative purposes, it is possible to make an application to the ATO nominating a substituted income year and may be advisable for the purpose of reducing compliance and reporting costs.
Federal-based taxes
Income tax
Generally income tax is payable by non-residents on income according to ordinary concepts and statutorily-defined income whenever it is considered to have an Australian source. This is, however, subject to various exceptions.
Top marginal tax rates for individuals in Australia are not dissimilar from other major economies. From 1 July 2013, individual tax rates range between 19% and 45% depending on your taxable income, the latter rate payable on incomes above $180,000 AUD. Certain prescribed non-residents, however, pay tax on their very first dollar of taxable income.
Non-resident companies, like resident companies, are in certain circumstances subject to a 30% flat rate. They are, however, treated differently in certain aspects such as dividend imputation and consolidation.
Withholding Tax
Australia is one of many jurisdictions which levy withholding tax on inbound investors. Subject to certain exemptions, non-residents are generally subject to withholding tax on dividends, interest and royalties. In effect, an amount representing the tax payable on these amounts is withheld from the payment and remitted directly by the payer to the ATO.
Withholding rates on dividends and royalties is normally imposed at a flat rate of 30%. However, for dividends and royalties paid to residents of countries with whom Australia has entered into a double taxation agreement (DTA), rates may be anywhere as low as 5-10%. Interest withholding is imposed at a flat rate of 10% with some exceptions.
Your country may have DTAs which govern withholding tax in a similar manner.
Goods & Services Tax (GST)
The GST is an indirect broad-based consumption tax imposed at a rate of 10% on most goods and services transactions in Australia. It is similar to value-added taxes (contrasted to sales taxes) in that it is generally refunded to all parties on the chain of production other than the final consumer.
An entity is required to be registered for GST if its current or 12-month projected turnover exceeds $75,000 AUD. If an entity is not registered, it is normally not liable for GST but cannot claim credits for GST it pays during its operations.
Fringe Benefits Tax
FBT is payable by employers on the value of certain non-cash benefits provided to employees and/or their associates in respect of their employment. This can include the provision of a private vehicles, entertainment and loan benefits.
Unlike the income year for tax purposes, the FBT year runs from 1 April to 31 March.
From 1 April 2014, FBT of 47% will be payable on a grossed-up value of benefits provided to employees. The amount of the gross-up is determined by the type of benefit provided.
State-based taxes
Payroll Tax
Payroll tax is imposed by States and Territories on business payrolls at rates varying from 4.75 to 6.85% depending on the jurisdiction where the employee's services are performed. Certain concessions and exemptions are available, with tax only payable once wages paid exceed an annual wages threshold which also varies between each jurisdiction.
Stamp Duty
Whilst far less prominent and often nominal in the US and parts of the EU, Australia like various other Commonwealth nations has an extensive stamp duty regime. Stamp duty is a form of indirect tax payable on a variety of documents and transactions. This can include, but is not limited to, transfers of real property interests, mortgages, personal property such as motor vehicles and dealings in shares and units in a unit trust.
Rates of duty vary between jurisdictions and depend on the type of transaction. Further, rates of duty may be levied at fixed or "ad valorem" (proportionate) rates.
Land Tax
Like property or real estate taxes levied in many foreign jurisdictions, land tax is levied across all States and Territories except the Northern Territory. Broadly, the tax is based on ownership or use of such land and is levied on the unimproved value of the land.
Whether land tax is imposed depends upon the value of the land in question. Provided the value of the land is below a certain threshold, land tax may not be levied at all.
Importantly, land owned and used predominantly as an individual's principal place of residence is generally exempt from land tax. Concessional treatment may also be available for primary production land.
Death, Estate & Gift duties
Currently there are no such taxes in Australia. However, some caution needs to be exercised as capital gains tax can apply to certain gifts.
Now that you are informed (at least in simple terms) of Australia's complex tax regime, issue three of Expanding Business into Australia will focus on the preliminary tax considerations you must bear in mind when seconding staff and taking your first steps into the Australian market.
| General Summary of Key Australian Taxation Rates | |
|---|---|
| INCOME TAX | |
| Companies | 30% |
| Resident individals | 19% - 45% (with $18,200 tax-free threshold) |
| Non-Resident individuals | 32.5 - 45% with no tax-free threshold |
| WITHHOLDING TAX | Standard rates before consideration of DTA: |
| Dividends | 30% |
| Interest | 10% |
| Royalties | 30% |
| Goods & Services Tax | 10% |
| Fringe Benefits Tax | 47% for year ending 31 March 2015 |
| State/Territory-based taxes | Rates and operation varies between jurisdictions |