Individual taxation

Residence and domicile

How is residence/domicile determined for tax liability purposes in your jurisdiction?

The four key tests that can determine whether individuals are residents for tax purposes are outlined in the table below:

Test

Information

The ‘resides’ test

This is the primary test for determining residency; it considers the living circumstances of the individual.

  • Does he or she intend to reside in Australia?
  • Is he or she permitted to reside in Australia (visas)?
  • Does he or she have an established financial presence (eg, bank accounts/employment/business)?
  • Does he or she have family living with him or her?
  • Does he or she own physical assets located in Australia?

An individual who fails this test may still be a resident if he or she passes one of the other tests.

The ‘domicile’ test

This test looks at whether Australia is the legal home of the individual. This is usually based on the location of the individual’s, or his or her parents’, place of birth.

The individual may be domiciled in Australia if he or she has the intention of living in Australia permanently.

The test also considers whether the individual has an established permanent home in another country. The indicators of a permanent home are the attributes of the ‘resides’ test.

The ‘183-day’ test

If an individual has been in Australia for a period of 183 days or more, he or she is considered to be a resident unless it can be shown that he or she has a home outside Australia where he or she usually resides. It is not necessary for the 183 days to be consecutive.

The ‘superannuation’ test

An individual will be considered an Australian resident if he or she is an employee of the Australian government and a member of a public service superannuation fund. The spouses and children of an Australian government employee will also be Australian residents.

Income

Describe the income tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

  • The income tax regime in Australia is administered on a federal basis. For Australian residents, their worldwide income from all sources is considered taxable unless an exemption applies.
  •  The income tax reporting year commences on July 1 and ends on the following June 30. Tax returns are required to be lodged each year by October 31. If a registered tax agent is lodging the return on behalf of the individual, the due date can be delayed until up to May 15 of the following year – depending on the individual’s circumstances. An individual will not be required to file an income tax return if his or her income is below the lowest income threshold.
  •  For the financial year ending on June 30 2018, the individual tax rates for residents are as follows:

     

Taxable income

Tax payable

0 - $18,200

Nil

$18,201 - $37,000

0.19 for each $1 over $18,200

$37,000 - $87,000

$3,572 plus $0.325 for each $1 over $37,000

$87,000 - $180,000

$19,822 plus $0.37 for each $1 over $87,000

$180,001 and over

$54,232 plus $0.45 for each $1 over $180,000

  •  Non-residents will be taxed at a rate of $0.325 for each $1 for the first $87,000 of taxable income. Any taxable income over $87,000 will be taxed at the same rates as residents. Where an individual becomes a resident part way through the financial year, he or she will become entitled to a partial tax-free threshold.
  • In addition to the above marginal rates of tax, residents are required to pay an additional 2% of taxable income for the Medicare levy.
  • Individuals are entitled to claim tax deductions for expenses that have been reasonably incurred in relation to activities that earn assessable income.
  • While most income is considered assessable, there are some types of income that may be exempt from taxation; these include: proceeds from lotteries and competitions, gambling winnings, superannuation pension payments (subject to certain conditions) and compensation payouts for personal injuries.
  •  A number of tax offsets may be available to reduce a taxation liability. The most common offset is the franking credit tax offset, which will reduce taxation liability for any franking credits that were attached to dividend income received by the individual. Any credits that exceed the tax liability are refundable.

Capital gains

Describe the capital gains tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

  • Capital gains are assessed as part of an individual’s assessable income and will be taxed at the individual marginal tax rates.
  • The most common trigger for capital gains tax is the sale or transfer of ownership of an asset. Other capital gain events include:
    • Creating contractual or other rights;
    • Granting an option; and
    • Creating a trust over an asset subject to capital gains tax.
  • There are no deductions available for capital gains; however, expenses incurred in the purchase or sale of the capital asset can form part of the asset’s cost base, which will decrease the capital gain amount. The expenses that can form part of the cost base include:
    • Transfer duty (also known as stamp duty);
    • professional fees (eg, lawyers, real estate agents, accountants);
    • advertising costs; and
    • borrowing expenses (loan application fees and mortgage discharge fees).
  • In terms of relief from capital gains tax, where an asset has been held for a continuous period of 12 months or more, the capital gain to be included in the individual’s tax return will be reduced by 50%. If the individual is conducting a business and the asset sold was used in the business, he or she may be eligible to make use of small business concessions, which can further reduce or negate the capital gain.
  • In Australia certain assets are exempt from triggering a capital gain, but are subject to limitations. The following assets are exempt from capital gains tax:
    • Residential real estate that was the individual’s principal place of residence (unless it was used to earn assessable income, in which case a partial exemption will apply);
    • Cars (motor vehicles that carry less than 1 tonne and fewer than nine passengers), motorcycles and similar;
    • Personal use assets that have a cost price of up to $10,000;
    • Collectibles that had a purchase price of $500 or less or were worth $500 or less when bought; and
    • Depreciable assets that were utilised as part of a business.

Inheritance and lifetime gifts

Describe the inheritance and gift tax regime in your jurisdiction (including tax base, rates, filing formalities and any exemptions, reliefs or deductions).

  • While there are no specific estate or inheritance taxes imposed in Australia, some gifts from deceased estates may be included in the assessable income of the recipient.
  • Where the estate includes the balance of a superannuation account, the taxation of the superannuation amount will depend on whether the beneficiary is a dependent of the deceased.
  • Superannuation accounts consist of three components (tax-free component, taxed component and untaxed component), which are each taxed at different rates. It is necessary to determine the amount of each component within the superannuation account in order to calculate the tax payable. While the tax-free component will be tax free for both dependents and non-dependents, the taxed and untaxed components will be taxed differently based on the age of the deceased, the age of the beneficiary and whether the beneficiary is a dependent for tax purposes.
  • The taxation of gifts under the terms of a will depends on the nature of the asset gifted and the provisions of the will itself. Capital assets of the deceased gifted in specie to a beneficiary will generally be received by the beneficiary with the cost base of the asset held by the deceased. The asset will not be subject to capital gains tax until sold by the beneficiary. If the asset is sold by the legal personal representative of the deceased with only the proceeds being distributed to the beneficiary, the estate of the deceased will bear the capital gains tax obligation, if any, when the asset is sold. 
  • Gifts during lifetime are generally not taxable for the recipient, but depending on the asset being gifted there may be taxation consequences for the giver.
  • Where the asset being gifted is not exempt from capital gains tax, the gifting may be a deemed sale of the asset by giver and will trigger a capital gain. The asset will be considered to have been sold at the market price of the asset on the date that it was transferred. For the recipient, the cost base of the asset will be deemed to be the market value on the date of the transfer.

Real estate

What taxes apply to individuals’ acquisition and disposal of real estate in your jurisdiction?

  • For the acquisition of real estate, each state in Australia has its own regime that applies stamp duty (also known as transfer duty) on the transfer of land. For the most part, this duty will be payable by the purchaser of the real estate. Depending on the intended use of the real estate and the circumstances of the purchaser, this duty may be reduced or waived.
  • If the individual is not an Australian resident, most states will impose an increased amount of stamp duty.

If the individual is conducting a business of buying and selling or developing property, then the proceeds from the sale of real estate will be included as part of their regular income.

Non-real estate assets

Do any taxes apply to the acquisition and disposal of other assets apart from real estate?

  • Where assets are included in the acquisition or disposal of a business, they may be subject to the application of transfer duty depending on which state in Australia the acquisition or disposal takes place. Otherwise, the sale of an asset may be subject to capital gains tax.
  • Assets such as shares in private companies, shares in listed companies and units held in unit trusts may be subject to capital gains tax depending on their cost base, market value at sale and the availability of applicable concessions.
  • It is important to consider in particular whether capital gains tax or duty applies to the acquisition or disposal of almost any asset (including high-value collectible items) with the exception of personal property. Capital gains tax will apply on the same basis Australia-wide, but duty is specific to each state and territory.   

Other applicable tax regimes

Are any other direct or indirect tax regimes relevant to individuals?

  • Most purchases of goods and services in Australia will be subject to a goods and services tax (GST) of 10% of the taxable value. This tax is typically collected and reported by the seller or service provider; however, an individual may be required to pay GST on any goods that he or she has imported into Australia.
  • Where an individual operates a business personally, he or she will be required to register as a GST-reporting entity if his or her business has a turnover of $75,000 (gross income not including GST) or more, or if he or she is providing taxi or limousine services to the public.
  • If the individual is operating a business with employees and provides benefits to those employees besides wages or superannuation, if the value of the benefit is over $2,000 per employee over a period of one year (the reporting period commences April 1 and ends March 31), then the individual may be liable to pay fringe benefits tax.
  • Land tax is a tax levied in most states and territories (it is not a federal tax in Australia) on the ownership of land, particularly investment property and generally excluding an individual’s principal place of residence. Each state and territory has different thresholds and requirements in respect of how this tax will be levied.

Planning considerations

Are there any special tax planning considerations for individuals with a link to your jurisdiction?

  • An individual that is receiving significant taxable income may be able to reduce his or her taxable income by making concessional contributions to his or her superannuation account.
  • If the individual is earning income from employment, he or she could enter into a ‘salary sacrifice’ arrangement with his or her employer where a portion of the wages or salary is not paid to him or her, but is instead directly deposited into his or her superannuation account. This decreases the taxable income and the amount that is deposited into the superannuation account is taxed at the concessional rate of 15%.
  • If the individual is self-employed, he or she may be entitled to make concessional contributions to his or her own superannuation account, which can be used as deductions from his or her business income. In addition, where an individual makes a capital gain from the sale of a business-related asset, he or she can reduce the capital gain by applying some of the proceeds towards his or her superannuation account.
  • There are multiple tax planning options available to individuals by the use of discretionary trust and private company structures. 

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