Australia Tax & Business Guide - Deloitte

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Basic facts
Population 20.4m Inflation 2.3% (2007)*
Main languages English, native languages GDP per head US$43,820*
Currency Australian dollar (AUD) GDP growth 4.1% (2007)*
Economic communities Asia Pacific Economic Co-operation, OECD, WTO
GDP sources 3.7% agriculture, 25.6% industry, 70.7% services
*Economist Intelligence Unit estimates.
Political environment

Australia is a democratic federal country of six states and two territories. Executive power is vested in the governor-general, Michael Jeffery, who represents the British crown, but in practice power rests with the federal cabinet.

The Labor Party won the federal election held on November 24th 2007. The prime minister is Kevin Rudd.
Foreign trade and investment
Exports US$140.0bn (2007)* Imports US$154.5bn (2007)*
*Economist Intelligence Unit estimates.

Leading export markets: Japan, the EU, China, the US, Korea and New Zealand.

Leading exports: Minerals and metals, rural goods and manufacturing goods.

Foreign companies face few obstacles to investment. Approval is required for overseas investment in certain industries and/or above certain threshold levels.

Mergers that are likely to reduce competition in a major market are subject to examination by competition authorities.
Business and financing
Business forms Private company, public company, no-liability company

There are three main corporate forms: private company (proprietary limited, or Pty Ltd), public company (limited, or Ltd) and no-liability company (NL). Other corporate forms are available but rarely used. Family businesses make extensive use of trust structures.

Foreign corporations must register with the Australian Securities and Investments Commission before they may conduct business.

Licensing and franchising are common.

The banking system is highly competitive. There is no discrimination in capital markets against foreign-owned companies seeking credit or loan facilities, and the elimination of exchange controls has increased fund-raising flexibility.

The main financial centres are Sydney and Melbourne.
Labour environment
Unemployment rate 4.4% (2007)* Minimum wage AUD 13.47 (hourly)
*Economist Intelligence Unit estimate.

Employees receive a range of mandatory entitlements and customary benefits.

The minimum wage is AUD 13.47 per hour.

A foreign worker may be employed temporarily or nominated for permanent migration if the position is made available first to local residents and if pay and conditions are not inferior to those of Australians in comparable jobs.
Taxation

Corporate tax
Standard rate 30%

Taxation occurs at the federal, state and municipal levels. A resident company (a company incorporated in Australia, carrying on business in Australia with its central management and control in Australia or controlled by Australian-resident shareholders) is taxed on worldwide income, with exemptions for some foreign income and/or credits for foreign tax paid. Non-resident companies are taxed only on Australian-source income. The corporate tax is levied at a flat rate of 30%; the same rate applies to both domestic and foreign companies. Simplified tax treatment is available for certain small businesses. Losses generally may be carried forward indefinitely, but may not be carried back.

Individual tax
Progressive rates rising to 45%

Resident individuals (individuals domiciled in Australia or in Australia for more than one-half of the income year) are taxed on their worldwide income (with a credit for any foreign tax paid); non-residents pay tax only on Australian-source income. Taxable income from wages, dividends, interest, rent and royalties is aggregated and charged at progressive rates up to 45%, with different bands applying to residents and non-residents.

Benefits such as company cars are subject to fringe benefits tax on the employer, and relief is available in respect of the provision of benefits to expatriates. Residents pay a 1.5% Medicare levy to fund the health programme, with an additional 1% surcharge for higher-income earners not covered by private health insurance. There is a favourable tax regime for employees who are temporarily resident in Australia.

Capital gains
Generally taxed as income

Capital gains are generally taxed as income, subject to rollover relief. A reduction in the capital gain on assets disposed of after a holding period of 12 months is available for entities on realisation other than companies. There is a relief for gains by an individual on the sale of a small business. On December 12th 2006 capital gains tax was abolished for most foreign investors. Since that date, foreign investors are only liable to capital gains tax on assets that are Ïtaxable Australian propertyÓ. In addition, certain non-Australian assets brought within the scope of the capital gains tax regime as a result of the new legislation receive a step up to market value (from May 10th 2005), and all foreign-owned Australian entities are eligible to use the demerger provisions.

Indirect tax
Standard rate 10%

The goods and services tax (GST) applies to most goods and services. Exports, basic foods, water, education and medical services are zero-rated (ÏGST-freeÓ); exempt (Ïinput-taxedÓ) items include certain financial services and residential rents. ÏEqualisation taxesÓ also apply on wine, spirits, beer, tobacco and luxury cars.

GST registration is compulsory for businesses with annual turnover of more than AUD 75,000, and voluntary registration is possible below this limit.

Tax administration and compliance
Tax year Corporations: year to June 30th or accounting year; Individuals: year to June 30th

Under the pay-as-you-go (PAYG) system, businesses make payments of corporate income tax, fringe benefits tax, GST and tax withheld from wages at a frequency determined by the size of the business, being monthly, quarterly or annually. The payments are usually due four weeks after the end of the relevant period. The balance of tax due is payable with the tax return. Large businesses must make monthly payments of GST. Emoluments are taxed by withholding.

Additional tax information
Withholding taxes Unfranked dividends 30%, Franked dividends 0%, Interest 10%, Royalties 30%. Rates may be reduced under provisions of an applicable tax treaty.
Tax treaties Australia has more than 40 tax treaties.
Dividends Dividends are taxable. Imputation credits may be available.
Revenue protection There is transfer-pricing, thin-capitalisation, offshore subsidiary (CFC) and general and specific anti-avoidance legislation.
Groups 100%-owned groups may elect to be treated as a single entity for income tax purposes and lodge a single consolidated income tax return. GST grouping is available for 90%-owned subsidiaries.
Incentives Research and development; venture capital; infrastructure; environment; films.
Other taxes Fringe benefits tax, Import and excise duties, Local land taxes, Payroll taxes, Stamp duty, Wine-equalisation tax.