Australia Tax Guide

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Australia
Tax Guide
2012
PKF Worldwide Tax Guide 2012 I
foreword
A country’s tax regime is always a key factor for any business considering moving
into new markets. What is the corporate tax rate? Are there any incentives for
overseas businesses? Are there double tax treaties in place? How will foreign source
income be taxed?
Since 1994, the PKF network of independent member firms, administered by PKF
International Limited, has produced the PKF Worldwide Tax Guide (WWTG) to provide
international businesses with the answers to these key tax questions. This handy
reference guide provides clients and professional practitioners with comprehensive
tax and business information for 100 countries throughout the world.
As you will appreciate, the production of the WWTG is a huge team effort and I
would like to thank all tax experts within PFK member firms who gave up their time
to contribute the vital information on their country’s taxes that forms the heart of this
publication. I would also like thank Richard Jones, PKF (UK) LLP, Kevin Reilly, PKF
Witt Mares, and Kaarji Vaughan, PKF Melbourne for co-ordinating and checking the
entries from countries within their regions.
The WWTG continues to expand each year reflecting both the growth of the PKF
network and the strength of the tax capability offered by member firms throughout
the world.
I hope that the combination of the WWTG and assistance from your local PKF
member firm will provide you with the advice you need to make the right decisions
for your international business.
Jon Hills
PKF (UK) LLP
Chairman, PKF International Tax Committee
jon.hills@uk.pkf.com
PKF Worldwide Tax Guide 2012 II
important disclaimer
This publication should not be regarded as offering a complete explanation of the
taxation matters that are contained within this publication.
This publication has been sold or distributed on the express terms and understanding
that the publishers and the authors are not responsible for the results of any actions
which are undertaken on the basis of the information which is contained within this
publication, nor for any error in, or omission from, this publication.
The publishers and the authors expressly disclaim all and any liability and
responsibility to any person, entity or corporation who acts or fails to act as a
consequence of any reliance upon the whole or any part of the contents of this
publication.
Accordingly no person, entity or corporation should act or rely upon any matter or
information as contained or implied within this publication without first obtaining
advice from an appropriately qualified professional person or firm of advisors, and
ensuring that such advice specifically relates to their particular circumstances.
PKF International is a network of legally independent member firms administered by
PKF International Limited (PKFI). Neither PKFI nor the member firms of the network
generally accept any responsibility or liability for the actions or inactions on the part
of any individual member firm or firms.
PKF Worldwide Tax Guide 2012 III
preface
The PKF Worldwide Tax Guide 2012 (WWTG) is an annual publication that provides
an overview of the taxation and business regulation regimes of 100 of the world’s
most significant trading countries. In compiling this publication, member firms of the
PKF network have based their summaries on information current as of 30 September
2011, while also noting imminent changes where necessary.
On a country-by-country basis, each summary addresses the major taxes applicable
to business; how taxable income is determined; sundry other related taxation
and business issues; and the country’s personal tax regime. The final section of
each country summary sets out the Double Tax Treaty and Non-Treaty rates of tax
withholding relating to the payment of dividends, interest, royalties and other related
payments.
While the WWTG should not to be regarded as offering a complete explanation of
the taxation issues in each country, we hope readers will use the publication as their
first point of reference and then use the services of their local PKF member firm to
provide specific information and advice.
In addition to the printed version of the WWTG, individual country taxation guides are
available in PDF format which can be downloaded from the PKF website at www.pkf.com
PKF INTERNATIONAL LIMITED
APRIL 2012
©PKF INTERNATIONAL LIMITED
ALL RIGHTS RESERVED
USE APPROVED WITH ATTRIBUTION
PKF Worldwide Tax Guide 2012 IV
about pKf international limited
PKF International Limited (PKFI) administers the PKF network of legally independent
member firms. There are around 300 member firms and correspondents in 440
locations in around 125 countries providing accounting and business advisory services.
PKFI member firms employ around 2,200 partners and more than 21,400 staff.
PKFI is the 10th largest global accountancy network and its member firms have $2.6
billion aggregate fee income (year end June 2011). The network is a member of the
Forum of Firms, an organisation dedicated to consistent and high quality standards of
financial reporting and auditing practices worldwide.
Services provided by member firms include:
Assurance & Advisory
Corporate Finance
Financial Planning
Forensic Accounting
Hotel Consultancy
Insolvency – Corporate & Personal
IT Consultancy
Management Consultancy
Taxation
PKF member firms are organised into five geographical regions covering Africa; Latin
America; Asia Pacific; Europe, the Middle East & India (EMEI); and North America &
the Caribbean. Each region elects representatives to the board of PKF International
Limited which administers the network. While the member firms remain separate
and independent, international tax, corporate finance, professional standards, audit,
hotel consultancy, insolvency and business development committees work together to
improve quality standards, develop initiatives and share knowledge and best practice
cross the network.
Please visit www.pkf.comfor more information.
PKF Worldwide Tax Guide 2012 V
structure of country descriptions
a. taXes payable
FEDERAL TAXES AND LEVIES
COMPANY TAX
CAPITAL GAINS TAX
BRANCH PROFITS TAX
SALES TAX/VALUE ADDED TAX
FRINGE BENEFITS TAX
LOCAL TAXES
OTHER TAXES
b. determination of taXable income
CAPITAL ALLOWANCES
DEPRECIATION
STOCK/INVENTORY
CAPITAL GAINS AND LOSSES
DIVIDENDS
INTEREST DEDUCTIONS
LOSSES
FOREIGN SOURCED INCOME
INCENTIVES
c. foreiGn taX relief
d. corporateGroups
e. related party transactions
f. witHHoldinG taX
G. eXcHanGe control
H. personal taX
i. treaty and non-treaty witHHoldinG taX rates
PKF Worldwide Tax Guide 2012 VI
A
Algeria. . . . . . . . . . . . . . . . . . . .1 pm
Angola. . . . . . . . . . . . . . . . . . . .1 pm
Argentina. . . . . . . . . . . . . . . . . .9 am
Australia -Melbourne. . . . . . . . . . . . .10 pm
Sydney. . . . . . . . . . . . . . .10 pm
Adelaide. . . . . . . . . . . . 9.30 pm
Perth. . . . . . . . . . . . . . . . . .8 pm
Austria. . . . . . . . . . . . . . . . . . . .1 pm
B
Bahamas. . . . . . . . . . . . . . . . . . .7 am
Bahrain. . . . . . . . . . . . . . . . . . . .3 pm
Belgium. . . . . . . . . . . . . . . . . . . .1 pm
Belize. . . . . . . . . . . . . . . . . . . . .6 am
Bermuda. . . . . . . . . . . . . . . . . . .8 am
Brazil. . . . . . . . . . . . . . . . . . . . . .7 am
British Virgin Islands. . . . . . . . . . .8 am
C
Canada -Toronto. . . . . . . . . . . . . . . .7 am
Winnipeg. . . . . . . . . . . . . . .6 am
Calgary. . . . . . . . . . . . . . . .5 am
Vancouver. . . . . . . . . . . . . .4 am
Cayman Islands. . . . . . . . . . . . . .7 am
Chile . . . . . . . . . . . . . . . . . . . . . .8 am
China - Beijing. . . . . . . . . . . . . .10 pm
Colombia. . . . . . . . . . . . . . . . . . .7 am
Croatia. . . . . . . . . . . . . . . . . . . .1 pm
Cyprus. . . . . . . . . . . . . . . . . . . .2 pm
Czech Republic. . . . . . . . . . . . . .1 pm
D
Denmark. . . . . . . . . . . . . . . . . . .1 pm
Dominican Republic. . . . . . . . . . .7 am
E
Ecuador. . . . . . . . . . . . . . . . . . . .7 am
Egypt. . . . . . . . . . . . . . . . . . . . .2 pm
El Salvador. . . . . . . . . . . . . . . . .6 am
Estonia. . . . . . . . . . . . . . . . . . . .2 pm
F
Fiji  . . . . . . . . . . . . . . . . .12 midnight
Finland. . . . . . . . . . . . . . . . . . . .2 pm
France. . . . . . . . . . . . . . . . . . . . .1 pm
G
Gambia (The). . . . . . . . . . . . . 12 noon
Georgia. . . . . . . . . . . . . . . . . . . .3 pm
Germany. . . . . . . . . . . . . . . . . . .1 pm
Ghana. . . . . . . . . . . . . . . . . . 12 noon
Greece. . . . . . . . . . . . . . . . . . . .2 pm
Grenada. . . . . . . . . . . . . . . . . . .8 am
Guatemala. . . . . . . . . . . . . . . . . .6 am
Guernsey. . . . . . . . . . . . . . . . 12 noon
Guyana. . . . . . . . . . . . . . . . . . . .7 am
H
Hong Kong. . . . . . . . . . . . . . . . .8 pm
Hungary. . . . . . . . . . . . . . . . . . .1 pm
I
India . . . . . . . . . . . . . . . . . . . 5.30 pm
Indonesia. . . . . . . . . . . . . . . . . . .7 pm
Ireland. . . . . . . . . . . . . . . . . . 12 noon
Isle of Man . . . . . . . . . . . . . . 12 noon
Israel. . . . . . . . . . . . . . . . . . . . . .2 pm
Italy  . . . . . . . . . . . . . . . . . . . . . .1 pm
J
Jamaica. . . . . . . . . . . . . . . . . . .7 am
Japan. . . . . . . . . . . . . . . . . . . . .9 pm
Jersey. . . . . . . . . . . . . . . . . . 12 noon
Jordan. . . . . . . . . . . . . . . . . . . .2 pm
K
Kazakhstan. . . . . . . . . . . . . . . . .5 pm
Kenya. . . . . . . . . . . . . . . . . . . . .3 pm
Korea. . . . . . . . . . . . . . . . . . . . .9 pm
Kuwait. . . . . . . . . . . . . . . . . . . . .3 pm
L
Latvia. . . . . . . . . . . . . . . . . . . . .2 pm
Lebanon. . . . . . . . . . . . . . . . . . .2 pm
Liberia. . . . . . . . . . . . . . . . . . 12 noon
Luxembourg. . . . . . . . . . . . . . . .1 pm
M
Malaysia. . . . . . . . . . . . . . . . . . .8 pm
Malta. . . . . . . . . . . . . . . . . . . . .1 pm
Mauritius. . . . . . . . . . . . . . . . . . .4 pm
Mexico . . . . . . . . . . . . . . . . . . . .6 am
Morocco. . . . . . . . . . . . . . . . 12 noon
N
Namibia. . . . . . . . . . . . . . . . . . . .2 pm
Netherlands (The). . . . . . . . . . . . .1 pm
New Zealand. . . . . . . . . . .12 midnight
Nigeria. . . . . . . . . . . . . . . . . . . .1 pm
Norway. . . . . . . . . . . . . . . . . . . .1 pm
O
Oman. . . . . . . . . . . . . . . . . . . . .4 pm
P
Panama. . . . . . . . . . . . . . . . . . . .7 am
Papua New Guinea. . . . . . . . . . .10 pm
Peru . . . . . . . . . . . . . . . . . . . . . .7 am
Philippines. . . . . . . . . . . . . . . . . .8 pm
Poland. . . . . . . . . . . . . . . . . . . . .1 pm
Portugal. . . . . . . . . . . . . . . . . . .1 pm
Puerto Rico. . . . . . . . . . . . . . . . .8 am
international timeZones
AT12 NOON, GREENwICHMEANTIME, THEsTANDARD TIME
ELsEwHERE Is:
PKF Worldwide Tax Guide 2012 VII
Q
Qatar. . . . . . . . . . . . . . . . . . . . . .8 am
R
Romania. . . . . . . . . . . . . . . . . . .2 pm
Russia -Moscow. . . . . . . . . . . . . . .3 pm
St Petersburg. . . . . . . . . . . .3 pm
s
Sierra Leone. . . . . . . . . . . . . 12 noon
Singapore. . . . . . . . . . . . . . . . . .7 pm
Slovak Republic. . . . . . . . . . . . . .1 pm
Slovenia. . . . . . . . . . . . . . . . . . .1 pm
South Africa. . . . . . . . . . . . . . . . .2 pm
Spain. . . . . . . . . . . . . . . . . . . . .1 pm
Sweden. . . . . . . . . . . . . . . . . . . .1 pm
Switzerland. . . . . . . . . . . . . . . . .1 pm
T
Taiwan. . . . . . . . . . . . . . . . . . . .8 pm
Thailand. . . . . . . . . . . . . . . . . . .8 pm
Tunisia. . . . . . . . . . . . . . . . . 12 noon
Turkey. . . . . . . . . . . . . . . . . . . . .2 pm
Turks and Caicos Islands. . . . . . .7 am
U
Uganda. . . . . . . . . . . . . . . . . . . .3 pm
Ukraine. . . . . . . . . . . . . . . . . . . .2 pm
United Arab Emirates. . . . . . . . . .4 pm
United Kingdom. . . . . . .(GMT) 12 noon
United States of America -New York City. . . . . . . . . . . .7 am
Washington, D.C.. . . . . . . . .7 am
Chicago. . . . . . . . . . . . . . . .6 am
Houston. . . . . . . . . . . . . . . .6 am
Denver. . . . . . . . . . . . . . . .5 am
Los Angeles. . . . . . . . . . . . .4 am
San Francisco. . . . . . . . . . .4 am
Uruguay. . . . . . . . . . . . . . . . . . .9 am
V
Venezuela. . . . . . . . . . . . . . . . . .8 am
Vietnam. . . . . . . . . . . . . . . . . . . .7 pm
PKF Worldwide Tax Guide 2012 1
Australia
australia
Currency: AUD  Dial Code To:61  Dial Code Out:0011
($)
Member Firm:
City:  Name:  Contact Information:
Adelaide  Wayne Manna  618 7421 1400      wayne.manna@pkf.com.au
Brisbane  Angie Hicks  617 3226 3555      angie.hicks@pkf.com.au
Melbourne  David Blake  613 9603 1700      david.blake@pkf.com.au
Perth  Chris Roos  618 9426 8999     croos@pkfmack.com.au
Sydney  Carlo Moretti  612 9251 4100      carlo.moretti@pkf.com.au
National  Lance Cunningham  612 9251 4100      lance.cunningham@pkf.com.au
a. taXes payable
FEDERAL TAxEs AND LEVIEs
COMPANy TAx
Australian resident companies are subject to company income tax on their income
derived from all sources. Non-resident companies are required to pay income tax only
on Australian-sourced income.
Resident companies are those that are incorporated in Australia or those that carry on
business in Australia and either have their central management and control in Australia
or their voting power controlled by shareholders who are Australian residents.
The tax year runs from 1 July to 30 June. Companies’ financial years usually coincide
with the tax year. A taxpayer can choose to have an accounting period different to the tax
year if they wish but this will require additional costs of preparing another set of accounts
based on the tax year. Alternatively, if a taxpayer has a good reason for having a financial
year other than 1 July to 30 June they can apply to the Australian Tax Office to have a
substituted accounting period (SAP) and align the tax year with their financial year. The
Australian Tax Office will generally accept applications for an SAP where an Australian
subsidiary wants to align its tax year with its foreign parent company’s financial year.
The company tax rate for the 2011/2012 tax year is 30% of the company’s taxable
income.
Companies are generally required to ‘self-assess’ their likely tax liability in a
financial year and pay the tax by quarterly instalments with the final tax liability being
reconciled in an annual tax return. ‘Likely tax’ is the latest estimate of tax payable
made by the company in a current financial year. If no estimate is made, ‘likely tax’ is
the tax assessed in the preceding year.
Company tax is payable on a quarterly basis. Companies that are not required to
report their goods and services tax (GST) on a monthly basis and with income tax
payable of less than AUD $8,000 for the most recent income year can elect to pay
an annual instalment of tax rather than quarterly instalments. Generally, the annual
payment date is 21 October when the income year ends on 30 June.
Quarterly company tax is payable within 21 days after the end of each quarter of the
financial year. However, where taxpayers are eligible to pay other quarterly obligations
on a deferred basis (namely those entities that are required to pay GST on a quarterly
basis); the due date is the 28th day after the end of the quarter (except for the
December quarter in which case payment date is 28 February).
There are two methods of working out the quarterly payment amount as follows:
•  Instalment Income Option– the quarterly payment amount is the amount
of gross assessable income earned for that quarter (less capital gains) multiplied
by the instalment rate. The instalment rate is advised by the Tax Office and is
based on the company tax paid on the most recent tax assessment divided by the
company’s turnover (less capital gains). This method is available to all taxpayers.
PKF Worldwide Tax Guide 2012 2
• GDP adjustment notional tax option– the quarterly payment income
amount is based on the assessable income figure from the most recent tax
return multiplied by a GDP factor. The income amount is advised by the Tax
Office. This method is available for individual taxpayers or other entities where
their most recent assessed taxable income was under AUD $1 million. Certain
categories of taxpayers such as farmers, sportspeople and artists may meet
their liability for these four instalments by making two payments per year.
BRANCH PROFITs TAx
There is no branch profits tax in Australia. However, Australian branches of foreign
companies will generally only be taxed on Australian-sourced income at the prevailing
company tax rate.
GOODs ANDsERVICEs TAx
All entities that carry on an enterprise in Australia are required to register for the
goods and services tax (GST) if their annual turnover meets the registration turnover
threshold of AUD $75,000 or AUD $150,000 for not-for-profit organisations.
Once registered, entities are required to charge 10% GST on all goods and services
that they supply within Australia, unless the supplies are specifically excluded, such
as education, health, child care services and certain types of food.
Registered entities are entitled to claim an ‘input tax credit’ equal to the amount of
GST paid on purchases, provided that those purchases were used for a ‘creditable
purpose’ in carrying on their enterprise. This means that the cost of the GST is
effectively borne solely by the end user.
However, there are two exceptions to the general rule:
(1) GST-free supplies (zero rated supplies): These supplies are provided by
enterprises to their customers free of GST, and the enterprise is also allowed to
claim input tax credits on its creditable business acquisitions. Examples include
education and health providers and certain types of food.
(2)  Input taxed supplies: These supplies are provided by enterprises to their
customers free of GST but the enterprise is not allowed to claim any input tax
credits on its creditable business acquisitions, effectively treating the supplier
as an end user. Examples include financial services providers and residential
accommodation supplies.
The GST collected from customers is remitted to the Federal Government on a
quarterly or monthly basis, depending on the size of the entity’s annual turnover.
FRINGE BENEFITs TAx (FBT)
Fringe benefits tax is a Federal tax that is payable by resident and non-resident
employers on certain benefits that are provided to their employees. The tax is levied
at a rate of 46.5% on the ‘grossed-up taxable value’ of each benefit that is provided
to employees. FBT is separate from income tax.
In calculating the ‘grossed-up taxable value’ of a fringe benefit, the provider must
first determine whether they are entitled to a GST input tax credit on that benefit. If so
entitled, the value of the benefit must be ‘grossed up’ using a rate of 2.0647. In all
other cases, the value of the benefit is grossed up using a rate of 1.8692.
The grossing up methodology effectively levies tax on the benefit at the rate of tax
that an employee on the highest marginal tax rate would pay on the cash salary
required for them to pay for the benefit out of after tax salary and taking into account
any GST input tax credit the employer can claim on providing the benefit.
Employees can make non-tax deductible contributions towards the private use
component of a benefit to reduce the taxable value, thereby reducing the FBT payable.
The FBT year runs from 1 April to 31 March. If the prior year’s FBT liability is AUD
$3,000 or more, it is payable on a quarterly basis on the same payments dates as
quarterly company tax (see above). If the total FBT liability is less than AUD $3,000,
an annual payment is required instead. The annual FBT return is due for lodgement
by 21 May of each year.
Any FBT paid in Australia by an employer is generally deductible for Australian
income tax purposes.
sUPERANNUATION CONTRIBUTIONs
Employers are required to make superannuation contributions on behalf of their
employees at a rate of 9% of the employee’s salary and wages. Contributions are
required on a quarterly basis.
Australia
PKF Worldwide Tax Guide 2012 3
If insufficient contributions are made, employers are liable for a Superannuation
Guarantee Charge. The ‘charge’ includes the shortfall in the contributions together
with an interest component and an administration fee. Employers who have a
superannuation guarantee shortfall are required to lodge a Superannuation Guarantee
Statement together with the ‘charge’ on the 28th day of the second month following
the end of the quarter.
Superannuation contributions made by employers for their employees are generally
income tax deductible. However, the employee is taxed at the rate of 31.5% on
contributions in excess of AUD $25,000 p.a. if the employee is under the age of 50;
or AUD $50,000 p.a. if the employee is aged 50 or over..
OTHER TAxEs
Other Federal taxes include:
(1)  Customs & Excise duties on certain imported items.
(2)  Carbon pricing scheme - will initially impose a fixed price on carbon pollution
commencing 1 July 2012. This scheme will be replaced with a carbon price to
be determined by the market from 1 July 2015.
Businesses responsible for direct greenhouse gas emissions of 25,000 tonnes
or more of carbon dioxide equivalence will be required to purchase permits
from the Government equivalent to the quantity of carbon pollution they release.
The initial price will be $23 per tonne increasing to $24.15 on 1 July 2013 and
$25.40 on 1 July 2014.
Use of liquid fuels, such as petroleum, diesel and LPG are generally not subject
to the carbon pricing system but will be subject to fuel excise increases of an
amount similar to the carbon price. The fuel excise increases will not be levied
on fuel used by householders, small businesses, agricultural, forestry and
fishing industries. Heavy on-road transport vehicles will also be excluded from
the fuel excise increases until 1 July 2014.
(3)  Petroleum resource rent tax – this is currently for certain offshore petroleum
projects but from 1 July 2012 the tax will be extended to all offshore and
onshore oil and gas production.
(4)  Minerals resource rent tax - for coal and iron ore projects in Australia from 1
July 2012.
(5)  Excise on fuel, tobacco and alcohol.
LOCAL TAxEs
The States and Territories of Australia impose the following taxes:
(1) Stamp duty: payable on specified transactions, including certain transfers of property.
(2)  Payroll tax: payable by employers who have total payrolls exceeding specified
thresholds which vary from State to State. Payroll tax rates between each State
and Territory varies from 4.75% – 6.85%.
(3)  Land and property taxes.
(4)  Workcare/workers compensation levies or premiums.
b. determination of taXable income
Taxable income equals assessable income less allowable deductions. Assessable
income includes ordinary income under common law and statutory income but
does not include specifically exempt or non- assessable income. Generally, to
be deductible, losses and outgoings must relate to the gaining or producing of
assessable income. Some items are specifically non-deductible, such as penalties
and fines. Capital expenses are generally non-deductible but may be deducted over
time as a capital allowance or included in the capital gains tax (CGT) cost base.
Expenses incurred in producing exempt income are also non-deductible. It is possible
to claim a portion of expense items that have dual purposes.
Special rules apply in respect of the categories listed below.
CAPITAL ALLOwANCEs
Plant, equipment and other depreciable items are generally written off over their
effective life. There are alternative rules for small business taxpayers with average
turnover less than AUD $2 million. Taxpayers may self-determine the effective life of
plant to calculate the tax depreciation rate or instead may rely on tax rates published
by the Commissioner of Taxation.
Either the straight-line or diminishing-value methods of depreciation can be used for
each item of plant and is determined as follows:
(1)  Straight-line method: 100% ÷ Asset’s effective life.
(2)  Diminishing-value method: 150% ÷ Asset’s effective life if acquired before 10
May 2006 or 200% if acquired on or after 10 May 2006.
Australia
PKF Worldwide Tax Guide 2012 4
Motor vehicles are subject to an indexed depreciation cost limit. The limit for the
2011/2012 financial year is AUD $57,466.
Taxpayers can elect to ‘pool’ plant items costing less than AUD $1,000 and depreciate
them at a diminishing-value rate of 37.5%. Previously depreciated items whose value
has decreased to less than AUD $1,000 can also be added to the pool. Where the
pooling option is not exercised, plant is to be depreciated over its estimated effective life.
An immediate write-off for depreciating assets costing less than $1,000 and pooling
of other depreciating assts is available for small business entities. From 1 July 2012,
the immediate write-off is intended to be increased to $6,500 for assets (including
motor vehicles). An immediate write-off of the first $5,000 will also be available for
motor vehicles costing $6,500 or more with the balance being pooled.
A 2.5% or 4% special write-off is available on a straight-line basis for the
construction costs of buildings used for income-producing purposes and traveller
accommodation, depending on their date of construction.
Most business related capital expenses that are not otherwise deductible; included
in the cost of depreciable assets; or included in the CGT cost base of an asset; are
deductible over five years.
sTOCK/INVENTORy
All trading stock on hand at the beginning of the year of income and all trading stock
on hand at the end of that income year must be taken into account in determining
taxable income.
Each item of inventory must be valued at the end of each financial year at:
• cost price valued at full absorption cost
• market selling value (the current selling value in the taxpayer’s trading market) or
• replacement cost.
The closing value adopted becomes the opening value at the beginning of the
following income year. Acceptable valuation methods include FIFO, average cost,
standard costing and retail inventory method. Non-acceptable valuation methods
include LIFO and the base stock method. Certain small business taxpayers who
have an annual turnover of less than AUD $2million are only required to make such
valuations where the value of their stock changed by more than AUD $5,000.
CAPITAL GAINs AND LOssEs
Net capital gains are generally included in the determination of assessable income.
Capital losses cannot be deducted from assessable income and can only be offset
against capital gains. Capital losses can be carried forward indefinitely to offset
against future capital gains.
Net capital gains are determined by deducting the cost base of an asset from
the proceeds received on disposal of that asset. The purchase price of an asset
purchased prior to 21 September 1999 can be adjusted for inflation indexation to the
quarter ending 30 September 1999. Indexation is not available for assets purchased
after 21 September 1999.
In lieu of indexation, individuals and trustees may be eligible for a 50% reduction in
their assessable capital gain if certain conditions are met. Complying superannuation
funds are eligible for a 1/3 discount. This reduction is not available for companies.
Other exemptions from capital gains tax may also be available, such as the main
residence exemption; gains from foreign branches; or small business exemptions for
businesses that satisfy certain criteria.
Foreign residents are exempt from Australian CGT except on Australian real
property; business assets used in an Australian permanent establishment (PE);
or equity interests in Australian or foreign companies or trusts with substantial
interests in Australian real property either directly or indirectly through interposed
entities. Australian real property includes Australian land and mining, quarrying and
prospecting rights over Australian land.
DIVIDENDs
In general, dividends received by resident shareholders from resident companies are
taxable but grossed up for any franking credits attached. The franking credits are
equivalent to the tax paid by the company on its profits out of which the dividend was
paid. However, the resident shareholders are allowed a tax offset of tax equal to the
amount of any franking credits on the dividend.
Australia
PKF Worldwide Tax Guide 2012 5
Dividends received from non-resident companies do not qualify for this tax offset but
may be entitled to a foreign tax credit (see foreign tax relief below). Alternatively, the
dividend may be tax-exempt if the recipient is an Australian company that has a 10%
or greater interest in the foreign company.
Dividends paid by non-resident companies in certain foreign countries are also
exempt to the extent that they represent profits already taxed in Australia under
Australia’s Controlled Foreign Corporation (CFC) rules.
Dividends paid by resident companies to non-resident shareholders are not subject
to income tax but may be subject to withholding tax except to the extent that the
dividends are franked (that is, have been paid out of Australian-taxed profits).
Payments of dividends are not generally tax deductible.
INTEREsT DEDUCTIONs
Interest is generally deductible to the extent it relates to funds borrowed for incomeproducing purposes.
Interest deductions may be restricted by the thin capitalisation provisions. The thin
capitalisation rules seek to deny deductions for interest payments if the taxpayer’s
debt-to-equity ratio exceeds the ‘safe harbour’ ratio of 3:1. An exception to this
rule is where the company can satisfy an ‘arm’s length test’, which focuses on the
company’s likely borrowings if it had acted at arm’s length and what independent
lenders would lend to the company on arm’s length terms.
The thin capitalisation provisions apply to foreign controlled Australian entities and
the inward investments of foreign nationals and Australian-based entities with foreign
investments. A de-minimis rule ensures that all corporate entities and their associates
(regardless of their nature or business) which claim no more than AUD $250,000 in
debt deductions per income year will not be subject to the thin capitalisation rules.
LOssEs
A tax loss is the excess of allowable deductions over assessable income (not
including exempt income) and can be carried forward indefinitely to offset against
future taxable income. For companies and trusts the deductibility of losses is
restricted by a ‘continuity of ownership’ test (more than 50% of voting, dividend and
capital rights). Alternatively, the loss is deductible if the company passes a ‘same
business’ test.
Losses cannot be carried back.
Losses cannot be transferred between entities. However, wholly owned corporate
groups that elect to be a consolidated group effectively can transfer losses as the
group is taxed as a single entity.
FOREIGNsOURCED INCOME
(i) Controlled Foreign Corporations (CFCs): Australia has a CFC regime which is
designed to ensure certain types of passive and associated party income of
a CFC is included in the controlling Australian resident’s taxable income each
financial year. In general, a foreign company will be regarded as a CFC where:
• five or fewer Australian residents hold at least a 50% interest in the foreign
corporation or have de facto control of the foreign entity
• an Australian entity (and its associates) has 40% or greater control in
the foreign corporation, unless they can prove that their interest is not a
controlling interest or
• irrespective of the interests in a foreign company, a group of five or fewer
Australian entities (either alone or together with associates) has actual
control of the company.
CFCs in seven listed countries (USA, UK, France, Germany, Japan, Canada and New
Zealand) are largely exempted from the CFC rules. The Australian Government has
repealed the Foreign Investment Fund (FIF) rules. There are several exemptions to
the CFC rules, including an active business exemption. The Government is currently
reviewing the CFC provisions with a view to simplifying the rules.
(ii)  Most foreign branch profits and capital gains of a resident company are
generally not taxed when the income or gain is derived in carrying on a business
through a permanent establishment in the following listed countries: UK, US,
Canada, France, Germany, Japan and New Zealand. Also losses from branches
in the countries listed above cannot be claimed. Foreign branches of resident
companies in other countries (unlisted countries) are generally not subject to tax
on profits or gains where the income is from an ‘active business’ and for capital
gains where the company used the asset wholly or mainly in an active business.
Associated losses will also not be claimable.
Australia
PKF Worldwide Tax Guide 2012 6
CONDUITFOREIGNINCOME
The conduit foreign income rules allow foreign income and certain foreign capital
gains to flow through Australian companies and other interposed entities to foreign
residents without being taxed in Australia.
INCENTIVEs
Specific write-offs are provided for the mining and primary production industries.
Expenditure on research and development also qualifies for accelerated deductions.
Special taxation treatment is also afforded to investment in innovative Australian
companies through a ‘venture capital tax concession’.
OTHER
(i)  Debt Forgiveness: Where a commercial debt is forgiven, special provisions
operate in some circumstances to effectively tax the borrower on the benefit
received as a result of the forgiveness of the debt. The ‘net forgiven amount’
is not included directly in the borrower’s assessable income but is applied
against the borrower’s tax attributes in the following order:
(1)  Reduction of revenue losses
(2)  Reduction of net capital losses
(3)  Reduction of deductions for particular expenditure
(4)  Reduction of the cost base of certain assets.
(ii)  Debt/Equity Rules: There are special debt equity rules that determine what
an equity interest is for a company and what a debt is. The rules determine
whether a return on a debt or equity interest in an entity may be frankable
and non-deductible (like a dividend) or may be deductible to the entity and not
frankable (like interest). Broadly speaking, the rules are based on the substance
of the arrangement rather than its legal form.
(iii)  Taxation of Foreign Exchange (forex) Gains or Loss: Special rules tax
forex gains and allow tax deductions for forex losses. The rules apply
to transactions where there is a disposal of foreign currency or a disposal
of a right to foreign currency, a ceasing of a right or obligation to receive
foreign currency, or a ceasing of a right or obligation to pay foreign currency.
These provisions will not apply where the taxpayer has made certain
elections.
c. foreiGn taXrelief
Where foreign sourced income is included in a taxpayer’s assessable income,
foreign income tax offsets are available at the lesser of the foreign tax paid or
the Australian tax payable. For example, any withholding tax paid on an assessable
dividend from a foreign company will generally be allowed as a foreign income
tax offset.
d. consolidated corporate Groups
Wholly-owned groups of Australian companies and trusts can elect to have their
income tax liability calculated on a consolidated basis. This means that the entire
group is treated and taxed as a single corporate taxpayer.
Where the parent of Australian subsidiary entities is a foreign entity, the
consolidation regime allows for the Australian subsidiary entities to be grouped
under the consolidation regime where certain conditions are met.
e. related party transactions
Non-arm’s length international profit-shifting arrangements and other international
transactions between related parties are governed by transfer pricing rules which
give the Commissioner of Taxation the power to calculate the income tax payable
based on arm’s length prices.
f. witHHoldinGtaXes
Withholding tax must be deducted from interest, royalties and dividends (to the
extent they are not franked) paid to non-residents. Liability for the remittance
of withholding taxes rests with the payer of such amounts. Withholding tax is
collected through the PAYG system and is determined according to the payer’s
PAYG withholding status. The payer is also required to lodge an annual report with
the Commissioner of Taxation where such amounts have been withheld during the
financial year.
The relevant withholding tax rates are:
Australia
PKF Worldwide Tax Guide 2012 7
1. Dividends – franked 0%
2. Dividends – unfranked
0 – 15% (treaty countries); 30% (non-treaty
countries)
3. Interest 10%
4. Royalties
5% – 15% (treaty countries): 30% (non-treaty
countries)
G. eXcHanGe control
Where more than AUD $10,000 of Australian currency is physically taken out of
Australia, the departing individual must report this to an Australian Customs Officer
or to the Australian Transaction Reports and Analysis Centre (AUSTRAC). Equivalent
amounts of foreign currency that are brought into Australia must also be reported.
H. personal taX
Income tax is payable by Australian resident individuals on non-exempt income
derived from worldwide sources. Non-resident individuals are only required to pay
tax on Australian-sourced income. Residency is generally determined by reference
to common law principles of residence. However an individual can also be deemed
an Australian resident if the individual’s domicile is in Australia (unless they have
a permanent place of abode outside Australia) or where the individual has spent
more than one half of the relevant year of income in Australia (unless their usual
place of abode is outside Australia and they do not intend to take up residence in
Australia).
Individuals that become residents for a short time may be eligible for the temporary
resident tax exemptions on their foreign income and capital gains. If they are holders
of a temporary resident visa (generally for up to four years but may be longer),
they will not be taxed on foreign-sourced income unless the income relates to
employment or services rendered while they are a resident of Australia. In addition,
temporary residents are not taxed on capital gains except for gains on ‘Taxable
Australian Property’ (see capital gains section above).
Income tax is payable on taxable income which is the ‘excess’ of assessable
income less allowable deductions. Assessable income includes business income,
employment income, capital gains on certain assets, dividends, rent and interest.
Allowable deductions include outgoings incurred in gaining or producing assessable
income such as interest expenses and statutory deductions such as tax-deductible
gifts to specified charitable entities.
Most individual taxpayers that are employees will generally have Pay-As-YouGo (PAYG) tax instalments withheld from their salary or wage payments by their
employers. Most individuals who are either self employed or who earn non-salary
income are required to make interim payments of tax during the financial year. The
amount of these instalments is calculated using the same method outlined at item A
above for companies. Individuals with likely tax of less than AUD $8,000 can elect to
make an annual payment, otherwise interim payments are generally required either
21 days after the payment period (or 28 days if they are deferred business activity
statement (BAS) payers).
A 1.5% levy, called the Medicare Levy, is payable by resident individual taxpayers.
This levy covers basic hospital and medical expenses for all Australian residents
and is assessed on the taxable income of resident individual taxpayers with no
maximum ceiling on the amount payable. Low income taxpayers may be eligible for
an exemption or reduced levy.
Higher income individuals without private health insurance are subject to an
additional 1% Medicare Levy Surcharge. A 30% rebate is available to resident
taxpayers for the cost of private health insurance.
A low income tax offset of AUD $1,500 is available to taxpayers with a taxable
income of less than AUD $30,001. This tax offset is phased out when taxable income
reaches AUD $67,500.
Various other tax offsets are also available to resident individual taxpayers such
as medical expenses rebate, zone offsets, dependents and spouse rebates, and
superannuation offset.
The tax rates for Australian individual residents and non-residents in the 2011/2012
financial year are outlined as follows:
Australia
PKF Worldwide Tax Guide 2012 8
Resident individuals – rates 2010–2011
Taxable income (AUD $)  Tax payable (AUD $)
$0 – $6,000 $Nil
$6,001 – $37,000 $Nil + 15% over $6,000
$37,001 – $80,000 $4,650 + 30% over $37,000
$80,001 – $180,000 $17,550 + 37% over $80,000
$180,000 + $54,550 + 45% over $180,000
Flood Levy
The Australian Government has imposed a flood levy to help pay for reconstruction of
infrastructure following extensive flooding in various parts of Australia in 2010 and 2011.
For 2011/2012 the flood levy is payable by resident individuals on a sliding scale
according to their taxable income as follows
Taxable income (AUD $) Tax payable (AUD $)
$0 - $50,000 $Nil
$50,001 - $100,000
0.5% of taxable income between
$50,000 - $100,000 i.e. 1/2 cent for
each $1 over $50,000
Over $100,000
1% of taxable income over $100,000
i.e. $250 + 1 cent for each $1 over
$100,000
Non-resident individuals – rates 2010–2011
Taxable income (AUD $)  Tax payable (AUD $)
$0 – $37,000 29%
$37,001 – $80,000 $10,730 + 30% over $37,000
$80,001 – $180,000 $23,630 + 37% over $80,000
$180,000 + $60,630 + 45% over $180,000
i. treaty and non-treaty witHHoldinGtaXrates
Dividends
(%)
(1) Interest)
(%)
(2) Royalties
(%)
(3)
Resident corporations
or individuals:
0 0 0
Non-resident corporations
or individuals of non-treaty
countries:
30 10 30
Treaty Countries:
Argentina 10 or 15 12 10 or 15
Austria 15 10 10
Belgium 15 10 10
Canada 5 or 15 10 10
China 15 10 10
Czech
Republic
5 or 15 10 10
Denmark 15 10 10
East Timor 15 10 10
Fiji 20 10 15
Finland 0, 5 or 15  10 5
France 0, 5 or 15 0 or 10 5
Germany 15 10 10
Australia
PKF Worldwide Tax Guide 2012 9
Dividends
(%)
(1) Interest)
(%)
(2) Royalties
(%)
(3)
Greece 30 10 30
Hungary 15 10 10
India 15 15 10, 15 or 20
Indonesia 15 10 10 or 15
Ireland 15 10 10
Italy 15 10 10
Japan 0, 5 or 10 0 or 10 5
Kiribati 20 10 15
Korea 15 15 15
Malaysia 0 or 15 15 15
Mexico 0 or 15 0, 10 or 15 10
Malta 15 15 10
Netherlands 15 10 10
New Zealand 0, 5 or 15 0 or 10 5
Norway 0, 5 or 15 10 5
Papua New
Guinea
15 or 20 10 10
Philippines 15 or 25 10 or 15 15 or 25
Poland 15 10 10
Romania 5 or 15 10 10
Russia 5 or 15 10 10
Singapore 15 10 10
Slovak
Republic
15 10 10
South Africa 5 or 15 0 or 10 5
Spain 15 10 10
Sri Lanka 15 10 10
Sweden 15 0 or 10 10
Switzerland 15 10 10
Taiwan/
Taipei
10 or 15 10 12.50
Thailand 15 or 20 10 or 25 15
United
Kingdom
0, 5, 15 0 or 10 5
United
States
0, 5, 15 or 30 0,10 or 15 5
Vietnam 10 or 15 10 10
Notes to withholding Tax rate schedule:
1 Franked dividends paid by Australian resident companies to non-residents are
exempt from dividend withholding tax.
2  Non-resident interest withholding tax in Australia is limited to 10% under
Australian tax law.
3  Withholding tax of 30% is generally imposed on the gross amount of royalties
paid from Australia to non-residents. A reduced rate is applicable to residents of
treaty countries as listed above.
The various rates may change according to categories and circumstances. Taxpayers
should consult the applicable DTAs to ascertain the applicable rate.
Australia
PKF Worldwide Tax Guide 2012 565
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