Australian tax at a glance for business migrants

Corporate income tax

Companies and individuals resident in Australia are taxed on worldwide income.

Companies are taxed on their net profit (including capital gains) at a flat rate of 30%, while individual taxpayers are taxed at marginal rates, up to 46.5%, with concessions available for capital gains.

Foreign currency gains and losses are recognised whenever realised, and passive income held in offshore (particularly tax haven) entitiesare generally taxed on an attribution basis, regardless of whether the income has been received by the taxpayer.

When a company’s net profit is paid out to shareholders as a dividend, it carries an imputation credit reflecting any Australian tax already paid at a corporate level. Effectively, this provides the shareholder with a credit for the Australian tax already paid by the company.

Employer taxes

The following taxes are levied on businesses on behalf of their employees:

  • A Fringe Benefits Tax is levied on employers at an effective flat rate of 46.5% on fringe benefits provided to employees (there are various exemptions associated with minor benefits and relocation costs).
  • Each state imposes on employers a tax on their payroll at a rate of approximately 6% of the value of the payroll (with a tax-free threshold of around AU$550,000).
  • Employers are required to contribute 9% of an employee’s remuneration (capped) to a registered superannuation fund on behalf of each employee.

Indirect taxes

Australia levies a Goods and Services Tax (GST) on the supply of most goods and services, at a rate of 10%. Food, rent, financial supplies, exports, health and educationalsupplies are generally exempted. Businesses can generally recover GST paid on inputs to their taxable supplies.

In addition to the abovementioned taxes, there are a series offederal and state indirect taxes on luxury cars, wine, imports andfuel. There is also a stamp duty on sales of real estate and a landtax, based on the unimproved capital value of land.

Tax incentives

There are various tax incentives available to businesses to encourage capital expenditure, including:

  1. Accelerated deductions for various capital expenditures, such as the exploration for and extraction of petroleum and other minerals;
  2. A temporary “investment allowance”, which provides an additional deduction of up to 50 per cent for the cost of purchasing new assets prior to 31 December 2009;
  3. Deductions of up to 125% of amounts expended on eligible R&D expenditure incurred by a company incorporated in Australia.
  4. Tax concessions aimed at encouraging investments in the venture capital sector.
  5. An Entrepreneurs’ Tax Offset of up to 25% for businesses run by small business entities, which can include companies with an annual turnover of up to $75,000; and
  6. Cash grants for export-market development expenditure for companies seeking to export Australian-source goods and services.

In addition, to encourage businesses to migrate tocertain states, state governments have given rebates from payroll, stamp and land taxes on an ad hoc basis and for limited periods.

A time of reform

The Australian government has commissioned the Henry Review to assess the Australian taxation system, focusing on the key aspects of all Australian corporate and individual taxes, including how much is raised, how much it costs to administer and how evenly the burden is shared. This review promises to bring Australia its most significant tax reform in more than 20 years.

Planning considerations

  1. Is the business going to be established through a company or via a trust?
  2. How should international aspects of the business be structured, considering transfer pricing, foreign currency and foreign attribution rules?
  3. If a business migrant holds shares in an overseas company, any dividends will be fully taxable in Australia, resulting in double taxation. What structures can be used to avoid this?
  4. How can foreign retirement savings be brought into Australia tax effectively?
  5. What opportunities are there to reduce customs duty and GST on imports into Australia?

Written by Rohan Geddes; PricewaterhouseCoopers Australia.

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