Taxation in Australia

The following information provides an overview of the Australian federal taxation system:

Companies

An Australian resident company is currently subject to tax at a rate of 30 per cent of its taxable income. Taxable
income is assessed on the basis of assessable business income less allowable business deductions.

A company is resident in Australia for income tax purposes if it is incorporated in Australia or, if not incorporated in
Australia, it carries on business in Australia and either has its central management and control in Australia, or its voting power is controlled by shareholders who are residents of Australia.

A non-resident company is taxed on its Australian source income (apart from interest, dividends, royalties and certain distributions by managed funds, which are subject to withholding tax) at the same rate as a resident company.

A non-resident company may obtain relief from, or a reduction in Australian tax under a relevant Tax Treaty in
certain circumstances.

Australia has a consolidation regime that allows grouping between wholly owned subsidiaries for tax purposes.

Capital Gains Tax

Capital Gains Tax (CGT) applies to the disposal of assets acquired (or deemed to have been acquired) after 19
September 1985. A net capital gain arises if the capital gain made by a taxpayer in a year of income exceeds the
capital loss made by the taxpayer in that year or carried forward from previous years.

Very broadly, a capital gain arises to a taxpayer on a disposal of an asset if the proceeds received on its disposal
exceed the cost base of that asset to the taxpayer.

Foreign residents who are individuals are subject to CGT on disposals of:

• direct interests in real estate located in Australia
  
• an interest in an entity where they and their associates hold 10 per cent or more of the entity and the value
  of their interest is principally attributable to Australian real estate
  
• an asset they have used in carrying on a business through a permanent establishment in Australia
  
• an option or right to acquire one of the above.

Repatriation of profits

Repatriation of profits can generally be undertaken at any time as there are no foreign exchange controls on such
repatriation. Dividends paid to foreign shareholders are subject to withholding tax (there are some exceptions).

Retirement income contributions

The Superannuation Guarantee legislation generally requires employers to contribute 9 per cent of an employee’s
salary or wages into an Australian superannuation fund.

There are some exceptions from the Superannuation Guarantee, including where a Social Security Agreement that
Australia has with another country exempts an employee who has been sent to work temporarily in Australia.

Individual tax rates — Residents

The Australian Taxation Offi ce provides advice for people (individuals) entering the Australian tax system for the
fi rst time to assist them in understanding Australian tax law.

An individual may receive various types of income, including salary and wages, pensions, interest, royalties, partnership and trust distributions and company dividends. The income may have a foreign or an Australian source.
A resident of Australia will generally be liable to Australian income tax on income and capital gains derived throughout the world (although there are a number of exceptions).

From 1 July 2006, a ‘temporary resident’ of Australia is generally only liable to Australian income tax on income sourced in Australia (although the ‘temporary resident’ may be assessable on worldwide income in limited cases,such as, salary and wage income).

As every person’s circumstances are different, there may be various tax credits, tax offsets (rebates), levies, liabilities,and tax treaty provisions, etc., that may apply.

Under Australian law, there are different tax rates for residents and non-residents. Resident individuals pay tax on
their taxable income at progressive rates ranging from 0 to 45 per cent. Determining whether an individual is a resident of Australia for income tax purposes depends on the detailed circumstances of each person. The standards
the Australian Taxation Offi ce uses to determine residency are not the same as those used by the Department of Immigration and Citizenship or Centrelink. Advice on residency for tax purposes can be obtained from the Australian Taxation Offi ce.

This table sets out the rates and thresholds for resident taxpayers (a low income tax offset also applies, which acts
to provide an effective tax free threshold for those taxpayers earning up to $30,000 of $14,000 in 2008 09, $15,000 in 2009 10 and $16,000 in 2010 11):

Resident taxpayers are subject to the Medicare levy. Normally, the Medicare levy is calculated at 1.5 per cent of taxable income. A variation to this calculation, by way of a reduction or exemption, may occur in certain circumstances.

Resident taxpayers and families on incomes above the Medicare levy surcharge thresholds who do not have
adequate private patient hospital cover during the income year may have to pay the Medicare levy surcharge. The
surcharge is in addition to the Medicare levy and is calculated at the rate of 1 per cent of taxable income (including
total reportable fringe benefi ts).

Individual tax rates — Non-residents

Apart from amounts that are subject to withholding tax (which are the same as for companies), non-resident
individuals are liable to tax only on income derived from Australian sources. They are not entitled to a tax-free
threshold. Non-residents are not required to pay the Medicare levy or the Medicare levy surcharge.
This table sets out the rates and thresholds for non-resident taxpayers:

Australian Taxation Office rulings

The Australian Taxation Offi ce provides various types of written advice (‘rulings’) about its interpretation of the tax laws.An Australian Taxation Offi ce Practice Statement explains the various types and levels of protection that apply when a taxpayer relies on any particular form of advice or guidance.

Income tax and the tax year

Australian federal income tax is assessed on a taxpayer’s taxable income (which is the assessable income less any allowable deductions) on an annual basis.In Australia there are no state or municipal income taxes or levies, nor are there specifi c social security taxes.Normally, the tax year is the 12-month period starting on 1 July and ending on 30 June. However, in certain circumstances, a substituted accounting period may be approved. This could be used, for example, to allow Australian subsidiaries of foreign companies to align reporting periods with a foreign parent.

Australia’s tax treaties

Australia has entered into bilateral tax treaties with a number of countries to avoid double taxation and prevent
fiscal evasion. These agreements are also referred to as ‘Double Tax Agreements’ or ‘Double Tax Conventions’.The general effect of a tax treaty is to limit Australia’s taxing rights in respect of certain types of income derived by a resident of the other country and vice-versa.

The Australian tax law generally requires tax to be withheld on interest, dividends, royalties and certain managed
funds distributions paid or deemed to be paid to non-residents of Australia.

The general rate of withholding tax on interest is 10 per cent, while the withholding tax rates on the unfranked
portion of dividends and on royalties is 30 per cent. However, Australia’s tax treaties provide for reduced withholding rates and some withholding tax exemptions for specifi ed dividend, interest and royalty payments. The withholding tax rate for managed funds is 30 per cent or 22.5 per cent (being phased-down to 7.5 per cent over three years), depending on the investor’s country of residence.

Franked dividends

Dividends are taxed differently depending on whether the shareholder is a resident or non-resident of Australia.
Generally, if a company pays or credits dividends out of income that has been subject to Australian company tax,
Australian resident shareholders are entitled to a credit (‘franking credit’) to offset other tax liabilities.
Dividends paid to non-residents are generally exempt from withholding tax to the extent that the dividend has
been franked.

Goods and Services Tax

A 10 per cent Goods and Services Tax (GST) was introduced into Australia in 2000. The GST is a broad-based tax on
goods and services. Generally, a business is required to register under the GST legislation. The GST is a consumer tax. Businesses which have paid for business supplies inclusive of the GST are entitled to claim an equivalent input
tax credit.Australian exports are generally GST-free, while imports are generally liable to GST.

Fringe Benefi ts Tax

Fringe Benefi ts Tax (FBT) is a tax paid on certain benefi ts employers provide to their employees in place of, or in
addition to, salary.FBT is separate from income tax. Fringe benefi ts arise, for instance, where an employer provides an employee with the use of a work car for private purposes, a cheap home loan, payment of the employee’s private health insurance or cleaning services for the employee’s private residence.

FBT is payable by the employer and is based on the taxable value of the various fringe benefi ts provided.

FBT does not apply to the payment of salary, wages or superannuation contributions.

Certain work related items are exempt from Fringe Benefi ts Tax, such as mobile phones, protective clothing, tools
of trade and laptop computers.

The rate of FBT is currently aligned with the top marginal income tax rate (including the Medicare Levy) of 46.5 per cent.

Useful websites

Australian Taxation Off ce: www.ato.gov.au
AusIndustry: www.ausindustry.gov.au
The Australian Treasury: www.treasury.gov.au
Australian Securities & Investments Commission: www.asic.gov.au
Australian Customs Service: www.customs.gov.au

Source: Australian Trade Commission

Updated: July 2010