International Tax Compliance Regulations in (Part 1): Australia
By Ross D. R. Forrester, Westcourt Chartered Accountants
The Australian government encourages businesses to operate in Australia and for Australian businesses to expand offshore. Honest resident taxpayers enjoy generous concessions on red tape and taxes. People who attempt to evade their compliance face significant penalties.
As a small country, many international companies approach Australia with a branch mentality. There is a significant focus on ensuring that Australian-sourced income is taxed in Australia and Australian residents pay tax on their worldwide income.
Our Commissioner of Taxation is currently the Sponsoring Commissioner of the Joint International Taskforce on Shared Information and Collaboration Network (JITSIC). The Australian Taxation Offce is also a member of The Joint Chiefs of Global Tax Enforcement (J5) with includes the US, UK, Canada, and the Netherlands.
Our tax regulator is subject to strict accountability rules and is generally effcient and transparent. We have an independent Ombudsman to review inappropriate conduct by the ATO.
Types of Businesses
Small Australian companies (business turnover < AUD 50 million) incur tax at 27.5% of taxable income. Larger companies and investment entities incur tax at 30%. The small company tax rate is anticipated to fall to 25% by 2022.
Australian trusts do not incur tax. Trusts are commonly used and convey advantages. The persons who receive allocations of trust income and capital suffer the tax burden. If a trust does not allocate income to a person, the trust incurs tax at 47%.
Partnerships are not taxed. The partnership income is taxed in the hands of the recipient.
4. Personal tax rates
There is a marginal tax rate Australian for residents. The rates are:
- The first AUD 18,200 of taxable income is free of tax.
- The next portion of income up to AUD 37,000 is taxed at 21%
- The next portion of income up to AUD 90,000 is taxed at 34.5%
- The next portion of income up to AUD 180,000 is taxed at 39%
- The income beyond AUD 180,000 is taxed at 47%.
For people earning less than AUD 126,000 there are also tax rebates on the above amounts. The above tax rates include a contribution to the national health scheme. Nonresidents do not pay the health scheme charge (2%). The first AUD 87,000 of income enjoyed by a non-resident incurs tax at 32.5%.
Types of Taxes
1. Goods and services tax
GST is levied at 10% for taxable supplies that are “necessarily connected to Australia”. There are GST exemptions for fresh food, exports, medical supplies, financial supplies (like interest), private residential rent, and established housing. GST applies to new residential housing and commercial property.
2. Capital gains tax
Australia applies a CGT regime on the sale of Taxable Australian Property (TAP) enjoyed by a nonresident. Australian residents pay tax on worldwide capital gains. A grandfathering clause applies to assets purchased before 1985. TAP includes Australian real estate, mining rights and assets used through a permanent establishment. Shares held in a company listed on the Australian Stock Exchange are not relevant for TAP.
An Australian natural resident enjoys a 50% GST discount on assets held for more than 12 months. Australian natural residents do not suffer capital gains tax on the family home. Where a non-resident sells Australian real estate for more than AUD 750,000, a 12.5% withholding tax is incurred on the sale. This tax acts as a CGT credit when in their income tax return.
3. Dividend imputation
Australia has an imputation system acknowledging the underlying company tax paid.
4. Withholding tax
A final withholding tax applies to interest (~10%) and royalty payments (~15%) remitted offshore. There is no withholding tax on franked dividends. Unfranked dividends suffer a withholding tax.
5. Thin capitalisation
Australia’s thin capitalisation rules do not apply for interest deductions of up to AUD 2 million.
6. Transfer pricing
Australian businesses are exempt from keeping transfer pricing documentation if turnover is under AUD 50 million and:
- The business has not made sustained losses;
- The business has not undergone a restructure;
- The related party dealings for royalties, license fees and R&D do not exceed AUD 500,000;
- The related party dealings are less than 15% of turnover; and
- The business has selfassessed it has complied.
There are different rules for a distributor.
7. Fringe benefits tax
A comprehensive system applies to the payment of non-cash benefits to employees (47%).
8. Employment taxes
Every employer must contribute 9.5% of a worker’s wage to a private retirement scheme. Payroll tax applies depending on each state. The payroll tax rate ranges from 4.75% to 5.5% of wages paid. There is an exemption for a small employer (with can be up to AUD 1.5 million in wages).
9. Wages costs
Every employer must carry workers’ compensation insurance for workers. The cost will vary. Every worker is entitled to 20 days of annual leave and 10 days of public holidays.
After 15 years of service a worker is due 90 days of long-service leave. Redundancy pay ranges from 4 weeks to 12 weeks depending on the length of employment. Smaller employers are exempt. Significant penalties apply for breach of safety regulations including criminal penalties.
Australian companies are not required to be audited unless they satisfy two of the three tests:
- Turnover is more than AUD 50m
- They employ more than 100 staff
- The gross assets are more than AUD 25m.
Foreign companies can apply for an audit exemption shortly after they are incorporated.
11. Death, gift, and wealth taxes
Australia has no death, gift, or wealth taxes (other than a state-based land tax).
An Australian couple can own AUD 3.2 million in a retirement (superannuation) fund and pay no tax at either the fund level or at an individual level.
13. Financial reporting
Australian companies are not required to disclose financial information unless they are required to be audited (see before). Trusts are not required to publicly disclose their financial information.
14. Property ownership
Different states have different rates of stamp duty applicable. Where a nonresident acquires property the additional stamp duty rate can be significant (7%). Non-residents can purchase new homes and vacant land with a new home build in four years. Land tax applies on property ownership. The family home is exempt from land tax.
Western Australia is a world leader in mining and agriculture. The bulk of families we have helped internationally are engaged with mining services, food, or related technology. We help many global families invest in, or move to, Australia on a temporary or permanent basis. Many of our mining services families are focused on leveraging technology globally or exporting food.
Taxation is subject to constant flux and change. And our government does not anticipate any major tax reforms in the near future.
Ross D. R. ForresterGGI member firm
Westcourt Chartered Accountants
Advisory, Corporate Finance, Fiduciary and Estate Planning, Tax
T: +61 08 9221 8811
Westcourt has one purpose: to make family-owned businesses great. They have deep technical expertise helping multi-generational global families create business wealth, grow locally and offshore, and transfer their business wealth successfully from one generation to the next.
Ross D. R. Forrester is the founder of Westcourt and regional vice chairperson, Asia-Pacific, of the GGI ITPG. He is also the WA Chair for The Tax Institute’s Technical Committee and sits on the National SME Committee. Ross is a frequent keynote speaker on taxation and has appeared across television, print media, and radio on taxation.
Published: Working Together to Optimise International Tax Compliance, No. 2, Spring 2020 l Photo: baspley - stock.adobe.com