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 include:
- 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 purposes.
If a business is considered to be an Australian resident for tax purposes, the business will typically need to obtain the following tax registrations:
- 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 its employees;
- 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 non-residents.
The rate of tax payable on income derived by a business operating in Australia will depend (in part) on the structure of the business.
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 length.
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.