Direct taxation of businessesi Tax on profits
Australian taxpayers are taxed on worldwide 'taxable income', typically with a 30 June tax year-end. Substituted periods can be approved for foreign-owned entities to match foreign parent balance dates.Determination of taxable profit
Taxable income is 'assessable income' less allowable 'deductions', both as defined by statute. Income and expenses recognised for tax and accounting purposes are often different, mainly as to timing but sometimes also as to amount. Tax adjustments, therefore, often produce differences between a company's taxable income and its reported profits. Common differences arise from differences in the timing of recognition of income and expenses (or depreciation); in the case of tax-consolidated groups, different calculations of the tax cost of assets; and elimination from taxable income of certain impairment, fair value and mark-to-market type adjustments made for accounting purposes.
Although Australian companies are generally subject to Australian tax on worldwide income, a capital gain or loss made by a resident company on shares in a foreign company may be reduced (in some cases to zero) under a 'participation exemption'. The Australian company must have held a 10 per cent or greater direct voting interest in the foreign company for a continuous period of 12 months in the preceding two years. In that case, the capital gain or loss is reduced by the proportion of the foreign company's active business assets to its total assets.
Australia also has complex rules to attribute income earned by controlled foreign companies to their Australian owners. The Australian owners generally are not attributed active business income, and dividends paid into Australia are exempt from tax. Foreign active business income derived directly is also generally exempt.Capital and income
Comprehensive rules within the income tax legislation include capital gains (net of capital losses) in assessable income. The rules also contain capital gains tax exemptions and concessions.
Non-residents are only subject to capital gains tax on assets that are 'taxable Australian property'. These assets include direct and indirect interests in Australian real property and the business assets of Australian branches. A non-resident investor is not subject to capital gains tax on a sale of shares in an Australian company, unless its shareholding exceeds 10 per cent and the Australian company's value is mostly attributable to Australian real property.
A non-final 12.5 per cent withholding tax applies to the proceeds of sales by non-residents of direct and indirect interests in Australian property. The tax does not apply to sales of real estate for less than A$750,000.
The capital gains tax rate for a company is the same as the income tax rate.Losses
Companies and stock exchange-listed trusts can carry forward losses indefinitely subject to continuity of majority ownership rules, or if those rules are failed, a same business rule. Carry-back of losses was briefly available for losses incurred by small companies, but is no longer available.
Revenue account losses can be offset against both income and capital gains. Capital losses can only be offset against capital gains.Rates
The headline rate of company tax is currently 30 per cent. However, a reduced rate of 27.5 per cent applies to companies with annual turnover of less than A$50 million (scheduled to decline to 25 per cent by 2021–2022). The turnover threshold is measured on a group-wide basis if the company is a member of a group.Administration
Companies are generally required to pay tax under a 'pay-as-you-go' collection system. This requires large companies and other large taxpayers to pay monthly (if their income is sufficiently high) or quarterly instalments of tax estimated by reference to income derived during the month or quarter (as applicable). Any variance from the estimate is reconciled, in the case of a company, five months after year-end.Tax grouping
Australian-resident companies and trusts may form a tax-consolidated group. A group consists of an Australian-resident 'head' company (which cannot be a wholly owned subsidiary of another Australian-resident company) and all its wholly owned Australian subsidiary entities. The consolidated group is taxed as a single entity, and intra-group transactions are ignored. The head company is primarily liable for group income tax, but subsidiaries may be jointly and severally liable if it fails to pay. The regime allows pooling of losses and movement of funds and assets within the group without income tax consequences. The cost of a subsidiary company's assets is set on joining the group by reference to the cost of its shares and its liabilities; the cost of shares in a subsidiary company is set on leaving the group by reference to the cost of its net assets.
Foreign-owned groups that have multiple entry points into Australia may form a 'multiple entry' consolidated group, with the head company chosen by the group from that point or 'tier 1' entities.ii Other relevant taxesGST
GST applies to supplies connected with Australia's 'indirect tax zone', and to the importation of goods and services into Australia. The rate is 10 per cent. Australian GST is similar to the European VAT regimes.
Supplies classified as 'GST-free' do not attract GST. They include education and health-related services, most basic types of food, exports of goods and services, and certain supplies to businesses. Importers are liable to GST on the customs value of goods worth more than A$1,000 imported into Australia; remote sellers with Australian turnover exceeding A$75,000 are liable to register for Australian GST and collect GST on goods sold to Australian consumers costing A$1,000 or less.
Other supplies that do not attract GST are known as 'input-taxed' supplies. These include financial supplies, residential tenancies and sales of residential premises other than new constructions.
These labels express the distinctions that other countries refer to as exempt or zero-rated supplies: input tax credits cannot be claimed for the GST incurred on acquisitions that relate to input-taxed supplies, but can be claimed for credits that relate to GST-free supplies. Input tax credits are generally otherwise available for GST paid with acquisitions in the course of a business.
Input tax credits are offset against the taxpayer's GST liabilities so that only a net GST amount is payable, usually on a calendar-month basis. Examples of financial supplies in relation to which input tax credits are not available include money lending, and other dealings with debt and equity interests. Apportionment for 'mixed use' acquisitions is required.
Corporate groups with 90 per cent common ownership may be registered as a single GST group. The group is separate from any consolidated income tax group and requires a separate election. A GST group may include non-corporate entities such as trusts and partnerships. A nominated member is responsible for the GST payable by the whole group. Supplies and acquisitions within the group are ignored.
The GST also applies to offshore supplies of digital products and services provided to Australian consumers. All supplies of intangibles will be caught, regardless of value.Fringe benefits tax (FBT)
FBT is payable by employers on the value of non-salary 'fringe' benefits provided to employees. Taxable benefits include the free or subsidised employee use of motor vehicles, housing, expense reimbursements and low-interest loans. Superannuation benefits are not subject to FBT.
The FBT rate is 47 per cent (i.e., the maximum personal tax rate) applied to the 'grossed-up' value of the benefit. The gross up ensures that the FBT payable is equivalent to the income tax that would have been paid in respect of an equivalent amount of after-tax salary.Petroleum resource rent tax
Petroleum resource rent tax is imposed on income from the recovery of petroleum products from offshore petroleum projects. It also applies to onshore oil and gas projects, and previously excluded North West Shelf projects.State royalties
Various natural resource royalties are applied by state governments.Payroll tax
Payroll tax is imposed by each state and territory on wages, salaries and other employee benefits, up to a rate of 6.1 per cent depending on the jurisdiction.Stamp duty
The various Australian states and territories all levy stamp duty. Although largely aligned, the duty regimes all differ in important details.
Duty is levied on transfers of interests in land, the creation of beneficial interests in land, transfers of shares and units in landholder entities, motor vehicle transfers and insurance contracts. The rate of duty can be up to 7 per cent depending on the jurisdiction. All Australian states also impose a foreign purchaser surcharge (which can be as high as a further 8 per cent) on foreign purchases of residential land.
Queensland, Western Australia and the Northern Territory also levy duty on transfers of business assets such as goodwill.
Nominal duty sometimes also applies to documents such as trust deeds. Without payment, these documents are not enforceable.Customs duty
Goods imported into Australia may be subject to customs duty.Excise duty
Excise duty is levied on alcohol, tobacco and petroleum produced in Australia.Land tax
Each state and the Australian Capital Territory impose a tax on ownership of commercial real estate. The maximum rate differs depending on the jurisdiction, but ranges from 1.5 per cent to 3.7 per cent. Agricultural land is excluded.
Queensland, Victoria and New South Wales have also introduced a surcharge of up to 1.5 per cent per annum for foreign owners of residential property with effect from 1 January 2017.Luxury car tax
Luxury car tax is levied, at 33 per cent, on the excess over A$66,331 (indexed; A$75,526 for specified fuel-efficient cars) of the retail value of a new car sold in or imported into Australia.Wine equalisation tax
Wine equalisation tax is levied at 29 per cent of the wholesale value of wine for consumption in Australia.