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Taxation
We have available to us specialists in UK tax, UK/Australian tax issues and South African/Australian tax matters. We also use experts in Australian tax matters if required. We can also advise on NZ/Australia tax marters.
We can have Australian tax returns prepared promptly and efficiently with guaranteed timelines.
In Australia the Tax Act is extremely complex and is constantly changing. It is said that it is the most complex legal enactment in Australia, closely followed by the Migration Act.
It is only possible to provide a broad outline here and advice should be obtained before any major moves are contemplated.
Tax authorities and responsibility
Australia’s taxation is spread between the three levels of Government - Federal (“Commonwealth”) Government, States or Territories and Local Government.
Federal Government taxes
The main taxes levied by the Federal Government are income tax, capital gains tax and GST – there are also other taxes mainly customs and excise and fringe benefit taxes. These taxes are applied to companies, trusts and individuals. The Australian Taxation Office (ATO) is Australia’s federal taxation authority.
State taxes
Taxes imposed by States include payroll tax, stamp duty, royalties and land taxes.
Local Government taxes
These taxes are mainly rates (on land value) and development levies.
Liability for income tax
Generally Australian (tax) residents must lodge an annual income tax return and pay income tax on all their income and capital gains from sources anywhere in the world.
Non-residents are taxed on all income and capital gains from Australian sources. However, this is modified where applicable by Australia’s double tax treaties.
The system operates by self-assessment, with random ATO audits to verify assessments and enforce compliance.
Australia’s income tax and fiscal year ends on 30 June although companies controlled by foreign entities with a different year end can apply for a substituted year end. Generally businesses, corporations, trusts, partnerships and individuals are obliged to lodge an income tax return on an annually if their total taxable income exceeds the limit set by the ATO.
Taxable income
Taxable income is the amount remaining after making all allowable deductions from assessable income. It should be noted that, as in most countries, there can be a substantial difference between accounting and taxable income due to taxation subsidies and concessions. The use of a Tax Agent/Chartered Accountant such as John Griffiths and Co is highly recommended.
Personal taxes
The rates of tax for resident individuals from 1st July 2008 are (in AUD):
| Taxable Income | Tax Rate % |
| $0 - $6,000 | 0% |
| $6,001 - $34,000 | 15% of excess over $6,000 |
| $34,001 - $80,000 | 30% of excess over $34,000 |
| $80,001 - $180,000 | 40% of excess over $80,000 |
| $180,001 + | 45% of excess over $180,000 |
Non-resident individuals pay tax at similar rates but with the difference that the first $34,000 is taxed at 29c in each $.
Tax rates for resident individuals from 1st July 2009 will be as:
| Taxable Income | Tax Rate % |
| $0 - $6,000 | 0% |
| $6,001 - $35,000 | 15% |
| $35,001 - $80,000 | 30% |
| $80,001 - $180,000 | 38% |
| $180,001 + | 45% |
Thresholds for non-residents will be adjusted accordingly.
The residents test
There are many issues determining residency, but generally individuals are deemed ‘residents’ if they are domiciled in Australia, unless that person can prove their permanent place of abode is outside Australia and there is no intention of residing in Australia. Expert advice should be obtained in this area.
Medicare
Medicare is the scheme which gives Australian residents access to healthcare. Australian taxpayers generally have to pay a Medicare levy at the rate of 1.5% of taxable income once this income exceeds a certain threshold. Individuals classified as non-Australian residents are exempt from paying this levy.
Business taxes
Income tax is levied on taxable income, which is assessable income less allowable deductions. Assessable income is gross income and includes certain capital gains.
Generally seductions are all expenditure incurred in gaining or producing the assessable income, or while carrying on a business. Allowable deductions normally include salary and wages, stock purchases, manufacturing, trading or administration expenses, interest, rentals and royalties.
Depreciation is allowed on items such as income producing plant and equipment, as well as certain forms of intellectual property.
Capital gain is the net capital gain generally resulting from the disposal of assets acquired after 19 September 1985. The taxable amount is determined by deducting the cost of the asset, and any incidental costs associated with its purchase and disposal, from the net proceeds of the disposal. Various concessions are then usually available to reduce the capital gain that is included in the taxable income. Generally there is a 50% reduction on most capital gains and, with certain small businesses, further concessions.
Capital losses are those which can only be deducted from taxable capital gains. They can be carried forward indefinitely but may only be used to offset particular capital gains.
Dividends are almost any distribution from a company to shareholders apart from returned paid-up capital. Dividends, with an imputation credit paid out of after-tax profits, are known as franked dividends and carry a tax credit of Australian tax paid @30%. The recipient can offset this credit against the tax payable.
Companies
For tax purposes all incorporated or unincorporated bodies or associations except partnerships are held to be companies. They are taxable under an imputation system, being assessed on their profits and usually taxed at a flat rate of 30%.
Resident companies
A company is resident in Australia if it carries on business or is incorporated in Australia and either:
- maintains its central management control in Australia or
- the voting power in the company is controlled by share holders who are resident in Australia.
Resident companies are required to disclose both Australian and non-Australian income.
Non-resident companies
A non-resident company has to file a tax return disclosing its Australian-sourced income. Australian subsidiaries of a foreign parent company may apply to the tax authorities to change their tax year accounting period to coincide with the financial year-end reporting requirements of the parent company. This can be modified if the parent country is part of Australia’s network of double tax treaties.
Partnerships
The partnership files a taxation return detailing the amount of taxable income distributed to each partner and outlining each partner’s share of the income and expenses. The partners then file their own tax returns including the whole of their individual share of the partnership’s income.
Trusts
Depending on the trust structure, tax will either be paid by the trustee or the beneficiary. A trust will be a resident trust during the year of income if either a trustee is resident in Australia, or if the central management and control of the trust is in Australia.
Sole traders
Sole traders are taxed as individuals and as such are taxed at a progressive or marginal rate of tax as detailed elsewhere in this paper.
Double tax treaties
Australia has established double taxation agreements with many other countries to avoid double taxation of income and to attack tax evasion.
These agreements vary slightly with the different countries. Generally, however, taxing rights over some classes of income only apply to the country of residence of the person deriving the income. All other income is able to be taxed in the country in which the income had its source.
Anti-avoidance provisions for foreign entities
These regulations are extremely complex and apply to investment into and out of Australia. They include provisions where debt allocation is examined (‘Thin Capitalisation”) and transfer pricing.
Federal taxes
Goods and Services Tax (VAT)
The Goods and Services Tax (GST) is a broad-based consumption tax applied at the rate of 10%, and applies to most goods and services consumed in Australia. The general exceptions include basic foods, education, health, charitable activities and some financial transactions.
All businesses must register for GST if they turn over $50,000 or more in sales during the financial year. Businesses registered for the GST have to return a Business Activity Statement (BAS) at the end of each quarter reporting their business tax entitlements and obligations. Such businesses can also claim a GST refund or “input tax credit” for the GST component applying to goods and services paid for while carrying on their business.
Fringe Benefits Tax (FBT)
Businesses which provide non-cash benefits to their employees are generally subject to Fringe Benefits Tax (FBT). This is charged at 46.5% of the taxable value of the fringe benefit, and is deductible by the employer for income tax purposes.
FBT applies to benefits such as private use of a motor vehicle, waiver of a debt, interest free or low interest loans, free or cheap housing and some discounted goods or services.
Customs and Excise
Customs duty (and GST in many cases) is payable on certain goods at the time they enter Australia.
State taxes
Payroll tax
Each State or Territory levies payroll tax on gross monthly wages, salaries and certain non-cash benefits paid by employers. Tax rates and thresholds differ between States and Territories but are up to 4.75 to 6.85% of the value of the payroll with thresholds varying from $550,000 in Victoria to $1,500,000 in the ACT.
Stamp duty
Stamp duties are imposed on contracts and legal documents such as transfers of land and the taking of security for financial accommodation such as mortgages and charges. Rates vary according to the type of transaction, and between the different States and Territories.
Land tax
Land tax, imposed by each State or Territory, is paid annually and is based upon the unimproved value of land owned by the taxpayer. Generally the rate of tax varies according to the value of the property. This tax may be deductible for income tax purposes if the land is used in the production of assessable income. There are various exemptions available to land holders depending upon the use of the land, including an exemption (in most cases) for an individual's principal residence.
Other impositions
Annual fees are payable on all vehicle registrations, as are council rates and taxes which again vary according to State or Territory regulations.
Employer obligations
Employers must withhold appropriate amounts of withholding tax (PAYG) from their employees’ earnings and pay this directly to the ATO. At the end of a financial year each employee is issued with a Statement of Earnings evidencing these deductions made on their behalf.
Employers are also obliged to pay a minimum level of superannuation for each employee into a recognised superannuation (pension) fund. In addition, they may be obliged to pay a workers' compensation levy in accordance with the differing regulations of the States and Territories.