Australia’s tax system revealed

Australia is one of the most attractive destinations for multinational corporations looking to get a foothold in Asia-Pacific.

Indeed, according to the World Bank’s Doing Business 2018 report, it remains one of the easiest places to do business and is now ranked 14^th in the world in this regard. The country is also globally recognised for strong business practices in the area of enforcing contracts, where it is rated third out of 190 economies.

On the other hand, Australia is positioned 55th in TMF Group’s Financial Complexity Index 2018,  which ranks 94 jurisdictions according to their complexity in terms of accounting and tax compliance. While this situation does not seem to put off the many companies still flocking there to do business due to tax incentives on foreign investments, it does make sense to get to grips with local taxation obligations.

Most major business taxes, such as income and goods and services tax, are collected by the Australian Government through the Australian Tax Office (ATO). All organisations in Australia are required to report their business activity statement to the ATO either through an online system, registered agent, phone or mail. 

Here is a summary of the types of taxes that you should know about before setting up shop in the country:

Business tax

Business taxes in Australia are governed and collected by the ATO as well as by state government revenue offices in some cases. The key taxes that companies should be aware of include:

• Payroll tax;
• Company (income) tax;
• Capital gains tax (CGT);
• Goods and services tax (GST);
• Fringe benefits tax (FBT);
• Stamp duty;
• Land tax.

Organisations can choose to make their tax payments monthly, quarterly or annually.

Payroll tax

Payroll tax is a state tax that is calculated based on the wages that companies pay to their employees each month. It must be paid if an individual’s total Australian wages exceed the exemption threshold set by each respective state or territory. For example, the payroll tax rate in Western Australia is 5.5%.

Individual income tax

Operating in Australia means that organisations need to assist their employees in handling the payment of their individual income tax. On 8 May 2018, the federal government announced new tax relief measures in the 2018 Federal Budget, with some elements taking effect from 1 July 2018 (2018/2019 financial year), subject to the passing of legislation.

For the 2018/2019 financial year, the federal government announced three significant changes to income tax rules:

• From 1 July 2018 until 30 June 2022, there will be a Low and Middle Income Tax Offset (LAMITO) for Australians with a taxable income of less than AUS$125,333 (US$92,531). The Low Income Tax Offset (LITO) will continue to apply alongside the LAMITO. According to the federal government, the LAMITO will provide tax relief of up to AUS$530 (US$391) a year for affected taxpayers;
• From 1 July 2018, the federal government will raise the marginal tax threshold for the 32.5% tax bracket to AUS$90,000 (US$66,452) from the previous AUS$87,000 (US$64,236);
• From 1 July 2019, the Medicare levy will increase to 2%, with an additional 0.5% to be directed to the National Disability Insurance Scheme (NDIS).

International tax treaties - and reporting requirements

Australia has direct tax agreements - or treaties - with more than 40 countries in order to prevent double taxation and promote cooperation between international tax authorities.

For example, on 7 June 2017, the country signed the Multilateral Convention to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (BEPS). BEPS refers to the tax planning strategies used by multinational companies to exploit differences between the tax rules of different international jurisdictions in order to artificially shift profits to low or no-tax areas where little or no economic activity takes place.

Financial institutions such as banks and other deposit-taking and custodial institutions, investment entities and specified insurance companies are also required to comply with the Common Reporting Standard (CRS). CRS is a single, global standard for the collection, reporting and exchange of financial account information about foreign tax residents.

Company tax

A non-resident company is taxed on its Australian source income at the same rate as a resident company. Taxable income and the tax rate may vary under limited circumstances, such as industry type or business structure.

But in general, small businesses with an aggregated annual turnover of lower than AUS$50 million (US$37 million) are only required to pay tax at a rate of 27.5%, while firms with an aggregated annual turnover of more than AUS$50 million will be required to pay tax at a rate of 30%.

Capital gains tax

Foreign entities are generally required to pay CGT on those CGT assets that are used in carrying on an Australian-based permanent business and on direct and indirect interests in Australian property.

They are also obliged to keep records upon acquiring assets that may be subject to CGT in future. This tax is paid as part of their corporate income tax. All CGT assets acquired since the enforcement of this tax policy on 20 September 1985 are subject to CGT, unless specifically excluded.

Goods and services tax

If a supplier’s GST turnover exceeds the annual registration turnover threshold of AUS$75,000 (US$55,360), they are required to register for GST with the ATO. Businesses are entitled to claim an equivalent input tax credit if they have paid for business supplies inclusive of GST. The GST rate in Australia is 10% and is applied on most goods, services and other items sold or consumed.

Other business taxes

Other types of business taxes may include fuel tax, stamp duty, land and fringe benefits tax depending on the state and territory a company operates in. it is important to review these taxes to determine whether they are applicable.

Bobby Stevansen Acevski is head of accounting and tax compliance at TMF Australia. He has experienced all sides and aspects of business and taxation and has worked for government, in private practice (both legal and chartered) and in various in-house roles.

Australia is one of the most attractive destinations for multinational corporations looking to get a foothold in Asia-Pacific.

Indeed, according to the World Bank’s Doing Business 2018 report, it remains one of the easiest places to do business and is now ranked 14^th in the world in this regard. The country is also globally recognised for strong business practices in the area of enforcing contracts, where it is rated third out of 190 economies.

On the other hand, Australia is positioned 55th in TMF Group’s Financial Complexity Index 2018,  which ranks 94 jurisdictions according to their complexity in terms of accounting and tax compliance. While this situation does not seem to put off the many companies still flocking there to do business due to tax incentives on foreign investments, it does make sense to get to grips with local taxation obligations.

Most major business taxes, such as income and goods and services tax, are collected by the Australian Government through the Australian Tax Office (ATO). All organisations in Australia are required to report their business activity statement to the ATO either through an online system, registered agent, phone or mail. 

Here is a summary of the types of taxes that you should know about before setting up shop in the country:

Business tax

Business taxes in Australia are governed and collected by the ATO as well as by state government revenue offices in some cases. The key taxes that companies should be aware of include:

• Payroll tax;
• Company (income) tax;
• Capital gains tax (CGT);
• Goods and services tax (GST);
• Fringe benefits tax (FBT);
• Stamp duty;
• Land tax.

Organisations can choose to make their tax payments monthly, quarterly or annually.

Payroll tax

Payroll tax is a state tax that is calculated based on the wages that companies pay to their employees each month. It must be paid if an individual’s total Australian wages exceed the exemption threshold set by each respective state or territory. For example, the payroll tax rate in Western Australia is 5.5%.

Individual income tax

Operating in Australia means that organisations need to assist their employees in handling the payment of their individual income tax. On 8 May 2018, the federal government announced new tax relief measures in the 2018 Federal Budget, with some elements taking effect from 1 July 2018 (2018/2019 financial year), subject to the passing of legislation.

For the 2018/2019 financial year, the federal government announced three significant changes to income tax rules:

• From 1 July 2018 until 30 June 2022, there will be a Low and Middle Income Tax Offset (LAMITO) for Australians with a taxable income of less than AUS$125,333 (US$92,531). The Low Income Tax Offset (LITO) will continue to apply alongside the LAMITO. According to the federal government, the LAMITO will provide tax relief of up to AUS$530 (US$391) a year for affected taxpayers;
• From 1 July 2018, the federal government will raise the marginal tax threshold for the 32.5% tax bracket to AUS$90,000 (US$66,452) from the previous AUS$87,000 (US$64,236);
• From 1 July 2019, the Medicare levy will increase to 2%, with an additional 0.5% to be directed to the National Disability Insurance Scheme (NDIS).

International tax treaties - and reporting requirements

Australia has direct tax agreements - or treaties - with more than 40 countries in order to prevent double taxation and promote cooperation between international tax authorities.

For example, on 7 June 2017, the country signed the Multilateral Convention to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (BEPS). BEPS refers to the tax planning strategies used by multinational companies to exploit differences between the tax rules of different international jurisdictions in order to artificially shift profits to low or no-tax areas where little or no economic activity takes place.

Financial institutions such as banks and other deposit-taking and custodial institutions, investment entities and specified insurance companies are also required to comply with the Common Reporting Standard (CRS). CRS is a single, global standard for the collection, reporting and exchange of financial account information about foreign tax residents.

Company tax

A non-resident company is taxed on its Australian source income at the same rate as a resident company. Taxable income and the tax rate may vary under limited circumstances, such as industry type or business structure.

But in general, small businesses with an aggregated annual turnover of lower than AUS$50 million (US$37 million) are only required to pay tax at a rate of 27.5%, while firms with an aggregated annual turnover of more than AUS$50 million will be required to pay tax at a rate of 30%.

Capital gains tax

Foreign entities are generally required to pay CGT on those CGT assets that are used in carrying on an Australian-based permanent business and on direct and indirect interests in Australian property.

They are also obliged to keep records upon acquiring assets that may be subject to CGT in future. This tax is paid as part of their corporate income tax. All CGT assets acquired since the enforcement of this tax policy on 20 September 1985 are subject to CGT, unless specifically excluded.

Goods and services tax

If a supplier’s GST turnover exceeds the annual registration turnover threshold of AUS$75,000 (US$55,360), they are required to register for GST with the ATO. Businesses are entitled to claim an equivalent input tax credit if they have paid for business supplies inclusive of GST. The GST rate in Australia is 10% and is applied on most goods, services and other items sold or consumed.

Other business taxes

Other types of business taxes may include fuel tax, stamp duty, land and fringe benefits tax depending on the state and territory a company operates in. it is important to review these taxes to determine whether they are applicable.

Bobby Stevansen Acevski is head of accounting and tax compliance at TMF Australia. He has experienced all sides and aspects of business and taxation and has worked for government, in private practice (both legal and chartered) and in various in-house roles.