For wagering operators conducting or wishing to conduct business in Australia, it is important to understand the Australian tax system and the tax obligations which apply.
In many ways, tax in Australia is a complex issue as it is imposed by all three levels of government in Australia (namely Federal, State/Territory, and local governments).
At the same time, Australia's tax-to-GDP ratio is low by international standards, making it one of the most competitive markets in OECD countries. In 2010 (the latest year for which comparable international data is available), Australia had the fifth lowest tax burden of the OECD countries.1
In this paper, we provide guidance on the application of betting tax and key Federal taxes for wagering operators.
Betting tax is imposed by the relevant State/Territory authority responsible for licensing the wagering operator. The Australian jurisdictions most recognised in licensing online wagering operators are the Northern Territory and Norfolk Island. We provide below a side-by-side comparison of the betting tax payable in respect of licences granted by each of the Northern Territory and Norfolk Island.
Click here to view table.
All States and Territories have imposed legislative product fee regimes in respect of racing. These regimes require all wagering operators to obtain in advance the necessary approvals/permits from the relevant racing administrative body or governmental authority to use race field information (insofar as they take bets on racing events held in that Australian State/Territory). All wagering operators must pay a product fee as part of each approval/permit, irrespective of where the wagering operator is licensed in Australia. (In some cases, the obligation also extends to wagering operators licensed outside Australia who offer bets on racing events held in that State/Territory.)
In relation to sporting events, most wagering operators have entered into nationwide product fee arrangements with some of the principal Australian sporting administrators. These are voluntary, except to the extent that they relate to events taking place in Victoria or NSW. Victoria has had in place for some years a statutory product fee regime in relation to sport, while New South Wales has introduced recently a similar product fee regime.
An Australian resident company for tax purposes is subject to tax on its worldwide income and is assessed for income tax at the company tax rate of 30%.3 This is imposed at the Federal level. An Australian resident company is defined as a company:
- incorporated in Australia;
- that has its management control in Australia; or
- that carries on its business in Australia and is controlled by Australian resident shareholders.
Non-resident companies (including an Australian branch of a non-resident entity) are taxed on their Australian-sourced income at the same rate as Australian resident companies, being the flat rate of 30%.
Australia uses a dividend imputation system which eliminates double taxation on company profits by allowing companies to attach franking credits to dividends paid. Each franking credit is a unit of tax paid by companies using the imputation system. Franking credits are then passed onto shareholders with the dividends, which allow the shareholders to offset their income tax payable.
Capital Gains Tax
A capital gain or capital loss is the difference between the purchase price of an asset and the price for which the same asset is sold. Tax is paid on capital gains (generally referred to as capital gains tax) and it forms part of the company's assessable income tax as opposed to a separate tax. Capital losses may be offset against certain capital gains and may generally be carried forward to offset gains in future years.
Goods and Services Tax (GST)4
GST is payable on the value of "taxable supplies". This means that GST only applies to the wagering operator's margin and not to the individual betting sales.
The margin is calculated as follows:
- the total amount received in bets for the tax period; less
- the total winnings paid by the wagering operator for the tax period.
The GST payable is one-eleventh of this margin.
PAYG Withholding From Interest, Dividends and Royalties Paid To Non-Residents
If a company pays interest, dividend or royalty payments to a non-resident (including a foreign company), the gross amount of each of those payments is subject to a final withholding tax rate of:
- 10% for interest;
- 30% for dividends (to the extent that dividends are unfranked); and
- 30% for royalty payments.
However, if the payment is made to a company tax resident in a country with which Australia has a tax treaty, a company may be required to withhold less tax or no tax at all. Tax treaties are special agreements that Australia has entered into with over 40 countries to prevent incomes from being double-taxed. For example, Australia has entered into tax treaties with the United Kingdom and Malta.
If a payee is a non-resident, a company must withhold tax when:
- making an interest, dividend or royalty payment to the payee;
- crediting the interest, dividend or royalty payment to the payee's account; or
- otherwise dealing with the interest, dividend or royalty payment at the direction of the payee, for example, by re-investing.