Australia has been ranked number four in the world for its
general tax competitiveness, ahead of the United States, United
Kingdom, Germany, Japan and France (KPMG, Competitive Alternatives
2010, Special Report: Focus on Tax).
There are a number of different taxes levied by each of the
Australian federal and state/territory governments. These
Federal Government: income tax, goods and services tax
(GST), fringe benefits tax (FBT),
indirect taxes (in respect of petrol, oil, tobacco, alcohol and
customs duty) and capital gains tax; and
State/Territory Governments: stamp duties, land tax, gambling
taxes, employer's payroll tax and motor vehicle taxes.
The two main federal tax statutes are the Income Tax
Assessment Act 1936 (Cth) and the Income Tax Assessment
Act 1997 (Cth). The Australian tax system is administered by
the Australian Taxation Office (ATO).
Among the tax considerations that should be taken into account
when investing or setting up business in Australia is whether any
double taxation agreements are in place between Australia and the
country of origin and whether the business would be considered an
Australian resident for tax purposes. Whether a foreign-registered
company is a 'resident' for Australian tax purposes will
depend on whether the central management and control of the company
is located in Australia. Specialist tax advice should be obtained
in determining whether a business is an Australian resident for tax
If a business is considered to be an Australian resident for tax
purposes, the business will typically need to obtain the following
an Australian Business Number (ABN);
a Tax File Number (TFN) from the ATO, which
identifies the business as a taxpayer. Individuals and businesses
alike are taxed through a system of income tax;
registration for GST if the business plans to sell goods or
services in Australia and its annual turnover is greater than the
prescribed amount (currently A$75,000 for for-profit businesses and
A$150,000 for non-profit organisations);
registration for the Pay-As-You-Go (PAYG) tax
withholding system if the business plans to employ staff in
Australia - the PAYG system requires an employer to deduct tax from
wages or salaries of employees and remit it to the ATO on behalf of
registration for FBT (fringe benefits tax) where the business
plans to provide employees with non-cash benefits, e.g. the use of
a company car; and
in the case of a company, registration for withholding tax if
it is likely to make dividend, royalty or interest payments to
The rate of tax payable on income derived by a business
operating in Australia will depend (in part) on the structure of
In most cases, income derived by a company that is a
'resident' for Australian income tax purposes –
whether in fact registered in Australia or not – is taxed at
a flat rate of, currently, 30%.
In contrast, partnerships are not taxed in their own right.
Instead, the members of a partnership are liable for income tax on
their share of the income from the partnership, calculated by
reference to individual tax rates.
As at 1 July 2012, individuals deriving income in Australia are
taxed at marginal tax rates of between nil and 45%. Different
marginal rates apply depending on whether the individual is a
resident or non-resident for tax purposes.
Each party to an unincorporated joint venture is also taxed in
their 'individual' capacity on the income derived from the
joint venture. The applicable tax rate will depend on the structure
of the relevant joint venture party.
Transfer pricing issues should also be considered.
Where a company is part of a consolidated group for Australian
tax purposes, transactions between the group members are generally
exempt from income tax. However, care should be taken in pricing
"intercompany" transactions, i.e. transactions relating
to tangible and intangible assets, services and funds between
commonly controlled parties, such as a parent corporation and its
subsidiaries, particularly where they involve less than
"arm's length" consideration for the purposes of
reducing total assessable income for tax purposes. The ATO can make
a transfer pricing adjustment where satisfied that a transaction
between commonly controlled companies is not at arm's
Upon commencing business, companies must appoint an
Australian-resident public officer and notify the ATO of the
appointment. A public officer is personally responsible for
ensuring that the company complies with its tax obligations.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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