Australia Taxation and Investment deloitte

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Taxation and Investment
in Australia 2015
Reach, relevance and reliability
A publication of Deloitte Touche Tohmatsu Limited
Contents
1.0 Investment climate
1.1 Business environment
1.2 Currency
1.3 Banking and financing
1.4 Foreign investment
1.5 Tax incentives
1.6 Exchange controls
2.0 Setting up a business
2.1 Principal forms of business entity
2.2 Regulation of business
2.3 Accounting, filing and auditing requirements
3.0 Business taxation
3.1 Overview
3.2 Residence
3.3 Taxable income and rates
3.4 Capital gains
3.5 Double taxation relief
3.6 Anti-avoidance rules
3.7 Administration
3.8 Other taxes on business
4.0 Withholding taxes
4.1 Dividends
4.2 Interest
4.3 Royalties
4.4 Branch remittance tax
4.5 Wage tax/social security contributions
4.6 Distributions from Managed Investment Funds
5.0 Indirect taxes
5.1 Goods and services tax
5.2 Capital tax
5.3 Real estate tax
5.4 Transfer tax
5.5 Stamp duty
5.6 Customs and excise duties
5.7 Environmental taxes
5.8 Other taxes
6.0 Taxes on individuals
6.1 Residence
6.2 Taxable income and rates
6.3 Inheritance and gift tax
6.4 Net wealth tax
6.5 Real property tax
6.6 Social security contributions
6.7 Compliance
7.0 Labor environment
7.1 Employee rights and remuneration
7.2 Wages and benefits
7.3 Termination of employment
7.4 Employment of foreigners
8.0 Deloitte International Tax Source
9.0 Contact us
Australia Taxation and Investment 2015
1.0 Investment climate
1.1 Business environment
Australia is an independent country within the Commonwealth of Nations. Australia is comprised of
six states and two territories. The head of state is Queen Elizabeth II, represented in Australia by
the governor-general, six state governors and two territory administrators. Australia’s head of
government is the prime minister.
There are three levels of government: federal (commonwealth), state and local. Australia has a
federal parliament, based on the British or Westminster parliamentary model, and separate state
and territory parliaments. The federal government is responsible for foreign affairs, defense,
immigration, communications, social services, banking, corporate regulation and income taxation.
The states, territories and municipalities also levy certain taxes, but do not levy income tax.
Economic activity historically has been focused on the country’s eastern seaboard, where most of
the population lives. Substantial mining activity is undertaken in various regions, especially
Western Australia and Queensland. As in most developed countries, the services sector generates
the bulk of GDP.
Australia is a member of the Organization for Economic Co-operation and Development (OECD),
the World Trade Organization (WTO), the Asia Pacific Economic Cooperation (APEC) and the
G20.
OECD member countries
Australia  Hungary   Norway
Austria  Iceland  Poland
Belgium  Ireland  Portugal
Canada  Israel  Slovakia
Chile  Italy  Slovenia
Czech Republic  Japan  Spain
Denmark  Korea (ROK)  Sweden
Estonia  Luxembourg  Switzerland
Finland  Mexico  Turkey
France  Netherlands  United Kingdom
Germany  New Zealand  United States
Greece  
Enhanced engagement countries
Brazil  India  South Africa
China  Indonesia
OECD accession candidate countries
Colombia  Latvia  Lithuania
Costa Rica  
Price controls
The government has not enacted laws regulating prices generally, but it has the authority to do so.
Australian states retain the power to impose price controls, although the range of goods actually
subject to control is diminishing.
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There are several price-regulating laws. The Competition and Consumer Act 2010 empowers the
Australian Competition and Consumer Commission (ACCC) to examine pricing in industries placed
under surveillance by the federal government. The intent of these provisions is to promote
competitive pricing wherever possible and to restrain price increases in markets where competition
is less than effective. The ACCC may (1) monitor prices, costs and profits of an industry or
business and hold companies accountable for their pricing policies; (2) impose formal surveillance,
or price vetting, of companies operating in markets where competition is ineffective and where
there is no immediate prospect of this changing; or (3) hold an inquiry when the outcome of the
price surveillance procedure is perceived to be unsatisfactory.
Intellectual property
Intellectual property laws in Australia provide protection for copyrighted works (including computer
software), patents, trademarks, designs, plant varieties, circuit layouts, confidential information,
business names and trading styles. Persons or corporate bodies of any nationality may acquire
intellectual property protection in Australia, subject to the relevant requirements.
Disputes involving intellectual property usually are litigated in the Federal Court of Australia, a
national court.
Australia’s IP laws provide greater protection than multilateral agreements, such as the World
Trade Organization’s Trade-Related Aspects of Intellectual Property (TRIPs) agreement and World
Intellectual Property Organization (WIPO) treaties.
Australia is party to the major international conventions.
Copyrights
Australia’s copyright law is contained in the Copyright Act 1968 and amendments thereto, and also
is based on court decisions. Copyright is assigned for the life of the creator, plus 70 years.
Remedies for copyright infringement include injunctions, damages or an accounting of profits,
conversion damages and additional damages (for flagrant violations) or delivery for destruction.
Certain infringing conduct also constitutes a criminal offense.
Patents
A patent gives its owner a statutory monopoly, for instance, the exclusive right to exploit the
claimed invention. Patents generally last for 20 years. The validity of a patent may be challenged
on various grounds, including absence of novelty or inventiveness. Remedies for infringement
include injunction (restraining order), damages, declaration or an accounting of profits and delivery
for destruction.
Applicants for patents are allowed a grace period during which an invention still may be protected,
in certain circumstances, even if it is made public. The Commissioner of Patents may grant a valid
patent for such an invention if the applicant files a complete application within 12 months of the
disclosure.
Trademarks
Trademarks are protected through common law action, provisions in the Competition and
Consumer Act 2010 that prohibit misleading and deceptive conduct and registration under
Australia’s Trade Marks Act 1995.
The registration threshold is “whether the mark is capable of distinguishing”; even marks lacking
inherent capacity to distinguish can meet the standard with distinctiveness acquired through use.
Unregistered or unregistrable marks may still be protected by a “passing-off” action or protected
against misleading conduct under the Competition and Consumer Act 2010 and under state-based
consumer-protection legislation.
Once a trademark is registered, rights are retroactive to the date of application. After a 10-year
term, a mark may be renewed for successive 10-year periods.
Interests (such as a security interest) in a registered trademark may be recorded in the trademark
register. A trademark may be transferred with or without the goodwill of the business connected
with the relevant goods and/or services. Partial assignment of a trademark is possible so that the
assignment applies to only some of the trademarked goods and/or services, but geographicallylimited assignments are not permitted.
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Australia is a signatory to the Madrid Agreement on the International Registration of Marks. This
lets an Australian trademark owner file a single application in English and pay a single fee to seek
protection of a mark in all or any of the other 50 countries that are parties to the treaty.
Industrial designs and models
New or original designs are protected by the Designs Act 2003. Registration protects the unique
shape, pattern, configuration and ornamentation of a design, including industrial designs, from
innocent or deliberate imitation. The maximum term for design protection is 16 years. The validity
of a design may be challenged, with the usual remedies for infringement being available.
Confidential information and know-how are protected under common law that prevents disclosure
of confidential information when imparted, subject to confidentiality and use restrictions. A
confidentiality agreement often is used to stop employees from revealing secrets or proprietary
knowledge during and after their employment or association with a business.
1.2 Currency
The currency in Australia is the Australian dollar (AUD).
1.3 Banking and financing
Australia has a competitive banking system and a wide range of other financial intermediaries.
Major providers of capital include banks (debt), insurance companies (equity and debt) and
superannuation funds for pensions (equity and debt). The principal services provided by banks
include deposit-taking, lending, payments and international transactions, management of electronic
accounts and risk exposure, issue of credit cards and clearance of checks and other payment
instruments, including smart cards.
Banks have interests in a range of nonbanking operations in and outside Australia. These include
finance companies; money market corporations (which may be merchant banks); bullion dealers;
brokers of securities, commodities, futures and options; online stockbrokers; property companies;
and venture capital firms. They also offer nominee and custodian services.
1.4 Foreign investment
The federal government encourages foreign investment that is consistent with community
interests. The government’s policy should be considered in conjunction with the Foreign
Acquisitions and Takeovers Act 1975 (FATA) and the Foreign Acquisitions and Takeovers
Regulations 1989.
Under the foreign investment policy and FATA, certain foreign investment proposals require prior
approval. These include proposed investments in Australian urban land or land-rich
corporations/trusts, acquisitions of interests in an Australian business where the value of the gross
assets is above AUD 252 million (indexed annually on 1 January) and direct investments by
foreign governments and their agencies, irrespective of size. Some thresholds are higher for
foreign nongovernment investors under the terms of the relevant free trade agreements (e.g. those
with Japan, New Zealand and the US). Rules are more restrictive with lower thresholds for foreign
government investors. Approval of proposals that would result in the acquisition of control of an
Australian company or business or an interest in real estate will be denied if the investment is
deemed contrary to the national interest.
Australia’s foreign investment policy applies to foreign persons. A foreign person is defined as any
of the following:
•  An individual not ordinarily resident in Australia;
•  A corporation in which an individual not ordinarily resident in Australia or a foreign
corporation holds a controlling interest;
•  A corporation in which two or more persons, each of whom is either an individual not
ordinarily resident in Australia or a foreign corporation, hold an aggregate controlling
interest;
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•  The trustee of a trust estate in which an individual not ordinarily resident in Australia or a
foreign corporation holds a substantial interest; or
•  The trustee of a trust estate in which two or more persons, each of whom is either an
individual not ordinarily resident in Australia or a foreign corporation, hold an aggregate
substantial interest.
A substantial interest exists where a foreign person (and associates) has 15% or more of the
ownership, or several foreign persons (and associates) together have 40% or more of the
ownership of a corporation, business or trust.
Proposals for foreign investment are submitted to the Foreign Investment Review Board (FIRB),
which examines proposals for acquisitions and new investment projects and makes
recommendations to the Treasurer. The FIRB’s functions are advisory and final responsibility for
making decisions on proposals rests with the Treasurer.
Industries in which there are limitations on foreign equity include banking, airlines and airports, and
the media.
1.5 Tax incentives
A research and development (R&D) tax incentive program applies for income years commencing
on or after 1 July 2011. Foreign entities that are tax resident in Australia or that carry on a business
via a permanent establishment (PE) in Australia may be eligible R&D entities in their own right.
Additionally, an Australian entity or a PE can carry on R&D activities on behalf of a foreign parent
or body corporate, provided certain conditions are satisfied.
Under the R&D tax incentive program, eligible expenditure on eligible R&D activities is not
deductible for tax purposes; instead, companies with an aggregated group turnover of less than
AUD 20 million are entitled to a 45% refundable tax offset (equivalent to a 15% net tax benefit) and
larger companies are entitled to a 40% nonrefundable tax offset, equating to a 10% net benefit at
the current company income tax rate of 30%. The maximum expenditure eligible for the R&D tax
incentive is AUD 100 million as from 1 July 2014. The offset is deducted from the basic income tax
liability after franking credits and foreign income tax offsets (if any) have been deducted. Excess
nonrefundable amounts can be carried forward and utilized under certain conditions. As at
September 2015, a bill is before the Senate that would reduce the rates of refundable tax offset to
43.5% and 38.5%, respectively.
The definition of eligible R&D activities focuses on experimental activities whose outcome cannot
be known in advance and that are carried out to generate new knowledge. Various integrity
measures may apply to increase the tax liability where the products of R&D activities are sold or
the costs are recouped, or a government grant is received.
An Investment Manager Regime (IMR) provides non-Australian residents (e.g. hedge funds) with
an Australian income tax exemption for returns or gains in respect of the disposal of their
investments that otherwise might be subject to Australian tax. Nonresidents qualify for the IMR
exemption for an income year if they invest in an “IMR financial arrangement” directly in Australia
(direct IMR concession) or invest in Australia via an Australian fund manager (indirect IMR
concession).
If an entity is entitled to an IMR concession, returns or gains made from the disposal of shares,
loans or derivatives, will be exempt from Australian income tax. Amounts that are subject to
withholding tax, such as dividends or interest, would not be entitled to the IMR concessions and
would continue to be subject to existing Australian withholding tax law. These concessions were
introduced by 2015 amendments to the IMR regime (IMR 3) and apply to the 2015-16 and later
financial years. However, qualifying taxpayers may elect to apply them to income years from 2011-12.
Various other incentives also are available (e.g. film tax incentives).
The governments of Australia’s six states and two territories offer a range of incentives to local and
foreign companies, including limited direct financial assistance, holidays from state taxes and
charges and concessional rentals of industrial land.
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1.6 Exchange controls
The government formulates exchange control policies with advice from the Reserve Bank of
Australia (RBA, the central bank) and the Treasury.
The RBA, entrusted with protecting the currency, has the power to implement exchange controls,
although there currently are none. There are no guarantees against inconvertibility.
Instead of exchange controls and tax screening mechanisms, the government relies on two
systems to monitor exchange and remittance: the accruals or attributions system for taxing certain
foreign-source income, and the reporting requirements of the Financial Transaction Reports Act
1988.
The tax legislation lists countries with tax regimes comparable to that of Australia, thereby
identifying by omission countries that may function as tax havens. The tax authorities may deem
income earned by a subsidiary in a tax haven to have accrued to the company’s Australian parent
and may tax the income accordingly, even if the funds have not been remitted to Australia.
Under the Financial Transaction Reports Act 1988, certain currency movements must be reported
to the Australian Transaction Reports and Analysis Centre (Austrac). Persons moving AUD 10,000
in cash or the equivalent in foreign currency, into or out of Australia, and banks making electronic
funds transfers of any size into or out of the country must report the movement to the agency. The
tax authorities use Austrac’s records to determine whether persons remitting funds to tax havens
have fulfilled their tax obligations.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 provides Austrac with
additional financial intelligence to prevent and detect money laundering and terrorism financing.
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2.0 Setting up a business
2.1 Principal forms of business entity
The most widely used forms for doing business in Australia are the limited liability company, sole
proprietorship, partnership, trust, joint venture and branch of a foreign company.
The Corporations Act 2001 permits a limited liability corporation to take one of two main forms: a
private company (proprietary limited or Pty Ltd) or a public company (limited or Ltd). Other
corporate forms are available (such as those limited by guarantee and those formed under royal
charter or Acts of Parliament), but these are infrequent in normal business practice.
A foreign corporation can operate in Australia by incorporating an Australian subsidiary or
registering as a foreign corporation and operating a branch office.
Formalities for setting up a company
An application for registration as an Australian company can be made to the Australian Securities
and Investments Commission (ASIC). When a company is registered under the Corporations Act
2001, it automatically is registered as an Australian company and can conduct business
throughout Australia without having to register in individual states or territories.
All corporate entities must report regularly on their shareholders, directors, executives and general
financial position to ASIC, and this information is available to the public. ASIC polices adherence to
the companies and securities law and may prosecute breaches in the federal court.
The status of a corporation (public or private) may not be the same under federal tax law as under
company law. A company that is private under company law, and incorporated as such, might
have public status under the tax law. For example, a private subsidiary of a public company usually
is deemed to be public for tax purposes.
To be considered public for tax purposes, a firm ordinarily must meet two tests: (1) its shares,
other than fixed preference shares, must, for tax purposes, be quoted on the official list of a stock
exchange in Australia or abroad at the end of the income year; and (2) at no time during the tax
year may 20 or fewer persons receive, or be entitled to receive, 75% of the dividends paid, or hold
or have the right to acquire 75% of the equity capital or voting power. A subsidiary that is (or is
capable of being) more than 50% controlled by a public company also is considered public. In
certain circumstances, the Commissioner of Taxation can designate as public other entities that fail
to meet the tests.
Conversely, an entity may be registered as a public company under company law but fail to meet
the tests for classification as public for tax purposes. Private and public companies generally are
taxed in the same manner, although the tax law may provide for different treatment in certain
cases (e.g. private company loans to shareholders).
The tax law distinguishes between resident and nonresident companies based on the place of
incorporation, the location of a company’s central management and control, and the residence of
the shareholders that control the voting power.
Forms of entity
Requirements for a public or private company
Capital: Both: There is no minimum or maximum nominal or paid-up capital. Shares may be
issued for cash or other consideration but details must be reported to ASIC. No legal reserves are
required.
Founders, shareholders: Ltd: There must be at least one member, but no maximum is stipulated.
Registers must be kept of shareholders, including their names, addresses, occupations and dates
of acquisition and disposition of shares. Pty Ltd: There must be at least one member and a
maximum of 50 nonemployee shareholders. The list of shareholders must be filed annually.
Board of directors: Ltd: There must be at least three directors, two of whom must be resident in
Australia. Information on directors, including their shareholdings in the company, must be reported
annually. Directors must disclose to one another any interest in proposed contracts. Pty Ltd: There
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must be at least one director, who must be Australian resident. Information on directors and their
other directorships must be filed annually.
Management: Both: There are no special requirements.
Taxes and fees: Both: ASIC fees payable on registration include AUD 46 to reserve a name (new
Australian company), AUD 463 to register a company with share capital and AUD 2,320 to register
a managed investment scheme.
Types of share: Ltd: All shares must be registered and all companies must keep share registers.
Common, cumulative preferred shares are permitted, among others, as are multiple-vote shares
(usually designated by Class A, Class B, etc.). A public company may invite the public to subscribe
for shares, debentures and other securities; alternatively, it may operate as an unlisted public
company. To list on the Australian Securities Exchange (ASX), a company must satisfy the
exchange’s listing requirements, such as the size of its capital base and the number and spread of
its shareholders. Pty Ltd: The same rules apply, where applicable. A private company may issue
shares privately for cash or consideration to individuals or firms, and may arrange secured loans.
Control: Ltd: A simple 51% majority normally is all that is needed, but companies may limit voting
rights of foreign shareholders. Shareholders may vote by proxy. Annual meetings are required and
members must receive statements in advance. Issues of more shares, or a change in the
memorandum or articles, require a special resolution (three-fourths majority) in accordance with
the articles. “Oppressed” minority shareholders may approach courts for protection. Pty Ltd: A
simple 51% majority normally is all that is needed; two persons (present in person or by proxy)
constitute a quorum (unless there is only a single member in the company).
Requirements for a partnership
Two or more persons, usually up to a maximum of 20 (except in the case of certain professional
partnerships, such as legal and accounting firms), may agree to carry on a business in partnership.
Each partner is treated for tax purposes as having an individual interest in the net income and
assets of the partnership. A company may be a partner in a partnership with another company or
with individuals.
A partnership is required to furnish an income tax return of the income of the partnership but the
partnership itself is not liable to pay income tax on such income. Each partner is required to file an
individual tax return that shows the net distribution of income and losses (if any) from the
partnership, and each partner is liable to pay income tax on his/her share of the net income at
his/her marginal tax rate.
A partnership asset is treated for capital gains tax (CGT) purposes as being owned by the partners
individually (and not the partnership) in proportion to each individual partner’s interest in the
partnership. As a result, capital gains or losses arising as a result of CGT events occurring in
respect of partnership assets (e.g. sale or disposal) must be disclosed in each partner's tax return.
Requirements for a trust
Trusts are a common form of investment vehicle, including for property investments and some
small business operations. Trusts are, in general terms, treated as flow-through entities for tax
purposes, with the tax liability falling on the beneficiary or unit holder. Certain trusts, referred to as
Managed Investment Trusts (MITs), can qualify for certain concessional tax treatment, including a
reduced rate of withholding tax (15%) on distributions to certain nonresidents and the ability to
elect that certain assets are held on capital account.
Requirements for a corporate limited partnership
Most limited partnerships are corporate limited partnerships (CLP) for tax purposes, i.e. they are
effectively treated as companies for income tax purposes.
The treatment of a CLP (including dividends paid by such a partnership) in respect of various
international matters broadly corresponds with the treatment of a company in these areas (for
instance, foreign income tax offsets and controlled foreign company (CFC) provisions).
A CLP is considered incorporated in the place in which it was formed under a law enforced in that
place. A CLP that is formed in Australia will be a tax resident of Australia if the partnership carries
on business in Australia or has its central management and control in Australia. This is an
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extremely broad definition—merely carrying on business in Australia can result in a CLP being an
Australian tax resident.
If a CLP pays or credits an amount to a partner in the partnership from profits or anticipated profits,
the amount paid or credited will be deemed to be a dividend paid by the CLP to the partner out of
profits derived by the CLP.
Partnership versus joint venture
A partnership for tax purposes is distinguished from a joint venture. The essential difference is that
joint venturers do not derive income jointly, as is the case with a partnership, and they are
individually liable for the costs of operating the joint venture.
After apportioning the costs of production, joint venturers usually are entitled to their individual
share of the product of the joint venture that they sell independently from the other venturers.
While each joint venture party is free to make its own election in respect of the tax treatment of its
separate interests in property, any election made by a partnership is binding on all partners.
Branch of a foreign corporation
Foreign companies may conduct business in Australia through a branch. Within one month of
starting a business, a branch must be registered as a foreign company with the ASIC. To register,
the company’s representative (who may be of any nationality) must submit the following
documents: copies of the document of incorporation of the head office and its memorandum and
articles of association (or corresponding documents in the home country); a list of directors; and
the name of the secretary or appointed agent. A branch of a foreign company normally must
supply the parent’s annual balance sheets and other reports to ASIC and must note its country of
incorporation and Australian business premises on bills, letterheads and other forms issued in
Australia.
A branch of a foreign corporation is taxed in broadly the same manner as a subsidiary in Australia.
2.2 Regulation of business
Mergers and acquisitions
Mergers and takeovers are prohibited where they would have the effect, or likely effect, of
substantially lessening competition in a market for goods or services. The ACCC may authorize a
merger that will lead to a substantial lessening of competition if it is satisfied that there will be
public benefits, including a resulting significant increase in the real value of exports or significant
import substitution. The ACCC has adopted an indicative position of not opposing mergers where a
sustained and competitive level of imports exceeds 10% of the market. The ACCC may allow a
merger to proceed subject to enforceable undertakings, such as requiring companies to dispose of
certain business assets to maintain market competition.
To assess a proposed merger or takeover, the ACCC aggregates the market power of the buyer
with that of corporations with which it is associated. “Association” exists between corporations
when the activities of one firm in a market are influenced to a substantial degree by another; for
example, a parent company and its subsidiary operating in the same market would be regarded as
associated. Factors taken into consideration include actual and potential import competition,
barriers to entry, market concentration, market dynamics, vertical integration, the resulting pricing
power accruing to the acquirer, market substitutes, countervailing market power and whether the
acquisition results in the removal of a vigorous and effective competitor from the market. Influence
arising from the competitive activities of companies or from normal sales of goods and services is
disregarded.
There are no specific tax regulations affecting mergers and takeovers. However, Australian tax
consequences will follow from mergers and takeovers, based on the nature and form of the
transaction. Broadly, a 100% acquisition of an Australian company by another Australian company
may be treated as if it were an asset acquisition, which generally results in a resetting of the tax
basis of the underlying assets. However, this is not the case where the transaction is a partial
acquisition, an acquisition by a nonresident entity or an acquisition of or by certain other types of
entity.
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Monopolies and restraint of trade
There is no law specifically to break up monopolies or prevent market dominance, but the
Competition and Consumer Act 2010 states that firms in a position to have substantial control over
a market must refrain from preventing entry to that market, reducing competition in the market or
harming or unlawfully eliminating a competitor (other than through the normal process of
competition).
A company wishing to enter into an anti-competitive arrangement, such as a price agreement, may
apply for authorization to the ACCC. If the company can show that the arrangement will result in
public benefits that outweigh the anti-competitive effect, it will receive legal immunity for what
would otherwise be a breach of the act. The immunity comes into effect only after the ACCC has
granted the authorization. The ACCC may revoke an authorization if there has been a material
change of circumstances since it was granted.
A company wishing to enter into an exclusive dealing arrangement must submit it to the ACCC.
There is no requirement for the company to show public benefit, and the protection cannot be
revoked unless the ACCC is satisfied that there is insufficient public benefit flowing from the anticompetitive conduct to outweigh the lessening of competition.
2.3 Accounting, filing and auditing requirements
Financial reporting requirements
Companies operating in Australia must prepare and file financial reports to comply with the
requirements of the Corporations Act and the Australian Securities and Investments Commission
(ASIC), Australia’s corporate, financial markets and financial services regulator. Companies may
be exempt from financial reporting in certain circumstances (e.g. based on their size).
Financial reporting framework and accounting standards
The “reporting entity” concept underpins the financial reporting requirements. Reporting entities are
those entities for which it is expected that there would be users who are not in a position to require
the entity to prepare reports tailored to their particular information needs.
Reporting entities are required to prepare a financial report in compliance with all Accounting
Standards and Interpretations, referred to as general purpose financial statements (GPFSs).
“Non-reporting entities,” however, have the option to prepare special purpose financial statements
(SPFSs) in compliance with accounting standards and interpretations considered necessary to
enable the financial reports to meet the special purpose needs of the users. Entities preparing and
lodging SPFS under the Corporations Act, however, must prepare reports that give a true and fair
view, which generally is interpreted to mean compliance with all the recognition and measurement
requirements of the Accounting Standards, as well as certain stipulated disclosure requirements.
Australian accounting standards are set by the Australian Accounting Standards Board (AASB), an
independent government agency. The accounting standards are broadly comparable to the
requirements of IFRS, although the AASB has made modifications to certain standards and has
issued additional interpretations and guidance to accommodate Australia’s specific legislative and
economic environment or to meet the specific reporting requirements of entities such as nonprofit
organizations.
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3.0 Business taxation
3.1 Overview
The principal taxes levied in Australia are income tax (which includes tax on capital gains),
withholding tax, and goods and services tax (GST). Other taxes include fringe benefits tax (FBT),
payroll tax, land tax, stamp duty and petroleum resource rent tax (PRRT). Only the federal
government levies income tax.
Australia has an R&D tax incentive scheme and an IMR (see 1.5 Tax incentives); individual states
also offer incentives.
Australia operates a full “imputation” system for the avoidance of economic double taxation on
dividends. Under this system, the payment of company tax is imputed to shareholders so that
resident shareholders are relieved of their tax liability in respect of dividends that are sourced from
profits that have been subject to Australian tax at the company level.
Australia operates a full self-assessment system, under which the Australian Taxation Office (ATO)
does not review income tax returns on filing but has wide-reaching audit powers to monitor
compliance.
Australia’s tax rules generally do not favour a subsidiary over a branch operation, or vice versa.
The taxable income of either form of operation is subject to the company income tax rate.
Australia operates several regimes designed to prevent the evasion or avoidance of tax. There are
thin capitalization rules, CFC rules, a general anti-avoidance rule (GAAR) and a transferor trust
regime.
The main tax legislation governing companies is the Income Tax Assessment Act 1936 and the
Income Tax Assessment Act 1997, as amended. The ATO is the country’s main revenue collection
agency.
Australia Quick Tax Facts for Companies
Company income tax rate  30%/28.5% (28.5% from 1 July 2015 for
companies with less than AUD 2 million annual
turnover)
Branch tax rate  30%/28.5% (28.5% from 1 July 2015 for
companies with less than AUD 2 million annual
turnover)
Capital gains tax rate  30%/28.5% (28.5% from 1 July 2015 for
companies with less than AUD 2 million annual
turnover)
Basis  Worldwide (resident)/Australian-source
(nonresident)
Participation exemption on outbound
investment
Yes
Loss relief
−  Carryforward
−  Carryback
Indefinite (subject to utilization tests)
No
Double taxation relief  Yes
Tax consolidation  Yes
Transfer pricing rules  Yes
Thin capitalization rules  Yes
Controlled foreign company rules  Yes
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Tax year  1 July to 30 June
Advance payment of tax  Monthly from 1 January 2014 for large
entities/otherwise quarterly
Return due date  15 January/28 February
Domestic withholding tax
−  Dividends
−  Interest
−  Royalties
−  Branch remittance tax
30%
10%
30%
No
Managed investment trust (MIT)  15% for recipients resident in information
exchange countries; otherwise 30%
Capital tax  No
Payroll tax  4.75%-6.85%
Superannuation contribution  9.5% of (capped) employee earnings
Fringe benefits tax  47%
Real estate tax  See stamp duty
Stamp duty  Varies, up to 7%
Petroleum resource rent tax  40% of taxable profits
Goods and services tax (GST)  10%
3.2 Residence
A company is resident in Australia if it is incorporated in Australia, or if not incorporated in
Australia, it carries on business in Australia and either exercises central management and control
in Australia or has its voting power controlled by shareholders who are residents of Australia.
The location of the company’s central management and control is a question of fact to be
determined in light of all relevant facts and circumstances.
3.3 Taxable income and rates
In principle, a resident company is liable for company income tax on its worldwide income,
although some types of foreign-source income are exempt. A nonresident company generally pays
taxes only on income derived from Australian sources.
Tax rates and treatment generally have been the same for all companies, including branches of
foreign companies, although there are exceptions for special types of company, such as
cooperative firms, mutual and other life insurance companies, and nonprofit organizations.
The company income tax rate is 30%. For small businesses (with less than AUD 2 million annual
turnover), the rate was reduced to 28.5% from 1 July 2015.
Taxable income defined
Company income tax is levied on a company’s taxable income derived during each year. To
calculate taxable income, a company computes assessable income and subtracts allowable
deductions.
Assessable income includes ordinary income and statutory income. Ordinary income derived by a
company carrying on business usually includes gross income from the sale of goods, the provision
of services, dividends, interest, royalties and rent. Gains that are capital in nature (capital gains)
may be included in assessable income. Assessable income excludes exempt income, such as
certain dividends received from pooled development funds and income derived by certain entities,
such as charities.
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Some income is characterized as non-assessable non-exempt (NANE) income. The important
distinction between NANE income and exempt income is that the latter reduces current year and
previous-year tax losses before they are carried forward to offset later assessable income.
As mentioned above, Australia operates a full “imputation” system under which the payment of
company income tax is imputed to shareholders, in that shareholders are relieved of their tax
liability to the extent dividends they receive are sourced from profits which have been taxed at the
corporate level. Dividends paid out of profits on which corporate tax has been paid are said to be
“franked” and generally entitle shareholders to an offset for the corporate tax paid. A simplified
imputation regime has been in effect since 2002.
Deductions
Expenses incurred in deriving assessable income are deductible to the extent they are incurred in
gaining or producing assessable income, or are necessarily incurred in carrying on a business for
the purpose of gaining or producing assessable income. Expenses that may be deducted in
calculating taxable income include royalties, management fees and interest paid to nonresidents, if
these expenses conform to commercial standards. The thin capitalization rules (as discussed in
3.6 Anti-avoidance rules), however, may affect the deductibility of interest. Also deductible are
most indirect taxes paid by a business, such as payroll tax and FBT. Dividend payments are not
deductible.
Deductions may be claimed for tax depreciation and previous-year tax losses (see below).
Depreciation
A uniform capital allowance system applies to all capital investments, including patents and
buildings. The eligible cost of depreciating assets is deductible over the effective life of the asset
using either the prime cost method (under which the cost is allocated uniformly over the effective
life) or, in some circumstances, the diminishing value method (which produces a progressively
smaller decline over time and gives a higher deduction for decline in value in the earlier years than
the prime cost method).
Statutory effective lives are set for certain infrastructure assets, including aircraft and some assets
used in the oil and gas industries. The ATO conducts an ongoing review to determine new
effective lives for depreciating assets.
Special rates apply for primary producer assets and investment in Australian films. Mining and
petroleum companies enjoy immediate deductibility for certain expenditure on exploration or
prospecting and onsite rehabilitation.
Notional tax depreciation on assets that are the subject of the R&D activities or are used to carry
out R&D activities can be eligible for inclusion in eligible R&D expenditure, increasing the net tax
benefit available.
Small business entities that carry on business and fall below an AUD 2 million turnover threshold
may choose to use simplified depreciation rules. These rules include an immediate write-off of
assets costing less than a statutory threshold and accelerated depreciation for assets with an
effective life of less than 25 years. Depreciable assets (excluding buildings) with lives of more than
25 years may be pooled and written off at 5% a year.
There is an immediate write off available for small businesses that acquire assets costing under
AUD 20,000 that generally are installed between 12 May 2015 to 30 June 2017, and certain
establishment expenditure starting from the 2015-16 income year.
Certain “black hole” capital expenditure that is not taken into account elsewhere in the income tax
law may be written off over five years.
Losses
Tax losses arise where allowable deductions exceed assessable income and exempt income (see
above). Tax losses may be utilized and carried forward indefinitely to offset future assessable
income, provided a “continuity of ownership” test (more than 50% of voting, dividend and capital
rights) or a “same business” test is satisfied.
Small mining companies can sacrifice tax losses into exploration tax credits that can be provided to
their shareholders from 1 July 2014 for an initial three-year period.
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3.4 Capital gains
Assessable income includes net capital gains, after offsetting capital losses. Net capital gains
derived by companies are taxed at the company income tax rate of 30% or 28.5%
Capital gains or losses on the disposal of shares by an Australian company in a foreign company,
in which the Australian company held at least a 10% voting interest for a specified period, may be
reduced by a percentage that reflects the degree to which the assets of the foreign company are
used in an active business.
Foreign investors are liable to CGT only on assets that constitute “taxable Australian property”
(TAP) in Australia. TAP includes direct and indirect interests in Australian real property (which
includes real property and mining and prospecting rights) and the assets of Australian PEs of
nonresidents. In addition, the disposal of shares in companies that are directly or indirectly
Australian land-rich (i.e. more than 50% of the gross asset value of the company is attributable to
Australian real property) are subject to CGT if the seller (and its associates) has a greater than
10% interest.
The CGT rules contain a number of rollovers allowing for the deferral of tax on capital gains (e.g.
replacement rollovers, where the ownership of one CGT asset ends and another asset is acquired
to replace it).
3.5 Double taxation relief
Unilateral relief
Australia generally taxes foreign-source income and net capital gains earned by Australian
residents under a worldwide basis of taxation.
From 17 October 2014, a distribution received by an Australian resident corporate tax entity will be
characterized as NANE income where:
•  It is a foreign equity distribution from a foreign company; and
•  The Australian resident holds a participation interest of at least 10% (directly or indirectly)
in the foreign company.
The foreign income tax offset (FITO) rules allow taxpayers to claim a tax offset for foreign tax that
has been (or is deemed to have been) paid in respect of amounts that have been utilized in
assessable income. The amount of the tax offset equals the foreign income tax paid, subject to a
cap that reflects the Australian tax that would have been paid on that amount and other foreignsource amounts. The taxpayer must have paid (or must be deemed to have paid) the foreign
income tax before an offset is available, and the offset may be used only in the income year to
which the foreign tax relates. Offsets may not be carried forward to future income years.
Tax treaties
Australia has a broad tax treaty network, with most treaties following the OECD model treaty.
Treaties generally provide for relief from double taxation on all types of income, limit the taxation
by one country of companies resident in the other and protect companies resident in one country
from discriminatory taxation in the other. Australia’s treaties generally contain OECD-compliant
exchange of information provisions.
Australia has entered into numerous tax information exchange agreements, including agreements
with the British Virgin Islands, Cayman Islands and Guernsey.
Australia meets its obligations under its double tax agreements by incorporating them directly into
domestic law. Each treaty is given the force of law domestically under the International Tax
Agreements Act 1953 (ITA Act), the provisions of which override any inconsistent provisions of
domestic law, except for the general anti-avoidance provisions (Part IVA – see 3.6 Anti-avoidance
rules).The ITA Act also clarifies that treaties are to be interpreted and read as one with the
Assessment Acts.
Consistent with Australia’s self-assessment regime, there is no requirement for nonresidents to
obtain a certificate of residence or other certification to obtain treaty benefits.
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Australia Tax Treaty Network
Argentina   Germany  Mexico  South Africa
Austria   Hungary  Netherlands  Spain
Belgium   India  New Zealand  Sri Lanka
Canada  Indonesia  Norway  Sweden
Chile  Ireland  Papua New Guinea  Switzerland
China  Italy  Philippines  Taiwan
Czech Republic  Japan  Poland  Thailand
Denmark  Kiribati  Romania  Turkey
Fiji  Korea (ROK)  Russia  United Kingdom
Finland  Malaysia  Singapore  United States
France  Malta  Slovakia  Vietnam
3.6 Anti-avoidance rules
Transfer pricing
For periods after 1 July 2013, Australia’s transfer pricing rules are contained in subdivisions 815-B,
815-C and 815-D of the Income Tax Assessment Act (ITAA) 1997; Subdivision 284-E of Schedule
1 to the Taxation Administration Act (TAA) 1953; Australia’s tax treaties; and a number of public
rulings issued by the ATO. The transfer pricing legislation is required to be applied to achieve
consistency with the OECD’s transfer pricing guidelines.
The rules in subdivision 815-B, 815-C and 815-D of the ITAA 1997 and Subdivision 284-E of the
TAA 1953 (applying to income years commencing on or after 1 July 2013) and the retroactive rules
in subdivision 815-A of the ITAA 1997 (applying as from income years commencing on or after 1
July 2004, up to the commencement of subdivision 815-B) may apply to any international
transaction and do not necessarily require common ownership between the two transacting parties
(i.e. “any connection” between the parties is all that is required). The rules apply to separate legal
entities, as well as to PEs. Covered cross-border transactions may include transactions involving
tangible or intangible property, the provision of services and financing.
The transfer pricing rules apply where an entity receives a transfer pricing benefit, which is
essentially a lesser tax outcome owing to the cross-border conditions (commercial or financial
relations) with another entity that differ from arm’s length conditions. Where this is the case, the
law substitutes arm’s length conditions for the actual conditions, and therefore negates (or adds
back to taxable profit) the transfer pricing benefit. “Arm’s length conditions” are the conditions
(including the price, gross margin, net profit and the division of profit) that might be expected
between independent entities dealing wholly independently with one another in comparable
circumstances.
The rules stipulate that the “most appropriate and reliable” arm’s length pricing method should be
applied. Commonly applied arm’s length pricing methods in Australia include the following:
•  Comparable uncontrolled price method;
•  Resale price method;
•  Cost plus method;
•  Profit split method; and
•  Transactional net margin method.
The following table summarizes the key provisions of Australia’s transfer pricing rules.
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Purpose  The laws aim to modernize the transfer pricing rules and bring them
into line with international standards and best practices.
Profit focus   The laws focus on arm’s length conditions and profit allocation, as
opposed to simply the arm’s length pricing of transactions. In
practice, this may give the ATO wider powers to attack loss-making
companies, given the ability to inquire into whether profit outcomes
are commercially realistic.
Reconstruction   The law includes “reconstruction powers” that may apply where the
substance of international transactions do not accord with the form,
or where conditions between international related parties are not
consistent with those that would have been in place between
independent entities in comparable circumstances.
Self-assessment   Public officers must determine that their company is in compliance
with the transfer pricing rules before signing and filing the company’s
tax returns.
Where non-arm’s length pricing has led to insufficient Australian
taxable income, “upward” transfer pricing adjustments must be selfassessed, either through the accounts before year end, or in the tax
return. Where non-arm’s length pricing has led to excessive
Australian taxable income, “downward” transfer pricing adjustments
cannot be self-assessed post-year end in the tax return.
Documentation   Failure to prepare transfer pricing documentation with the
appropriate content by the time the tax return is filed means a
“reasonably arguable position” cannot exist for penalty mitigation
purposes.
Finance   Arm’s length interest rates on inbound related party debt must be
based on rates that would have applied to notional arm’s length debt
amounts.
Time limit  There is a seven-year time limit on the ability to amend assessments
to give effect to transfer pricing adjustments.
OECD guidance   The laws must be applied to best achieve consistency with the
OECD’s transfer pricing guidelines.
Subdivision 284-E of the Taxation Administration Act 1953 sets out the documentation/records that
an entity should prepare to demonstrate that they have complied with subdivision 815-B. To satisfy
the rules, this documentation must be prepared before filing the relevant tax return. While the
legislation does not mandate the preparation or maintenance of transfer pricing documentation,
failure to prepare this documentation prevents an entity from establishing a reasonably arguable
position for penalty reduction purposes. The ATO has issued guidance on its expectations
regarding transfer pricing documentation, which can be found in Taxation Ruling TR 2014/8 –
Income Tax: transfer pricing documentation and subdivision 284-E.
Where an Australian taxpayer’s international related party dealings exceed AUD 2 million during a
tax year, it must file details of these transactions in a schedule accompanying the annual income
tax return, known as the International Dealings Schedule (IDS). The IDS details the countries with
which transactions have been completed, the types of transaction and dollar values for the year,
the extent to which the taxpayer has prepared transfer pricing documentation in relation to its
related party transactions and the pricing method(s) applied.
The IDS provides the ATO with detailed information regarding an entity’s cross-border related
party dealings, including information on derivative transactions, debt factoring and securitization
arrangements, share-based employee remuneration recharges, cost contribution arrangements,
business restructures and branch operations. These additional disclosure requirements are used
by the ATO in its risk profiling and case selection activities.
The ATO has the authority to undertake a review or audit of a company in relation to its transfer
pricing. In practice, the ATO typically will initiate a “client risk review” including a component that
reviews transfer pricing arrangements to determine the risk to Australian tax revenue that may
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arise from non-arm’s length dealings. Where the ATO views a taxpayer’s dealings as being of
sufficiently high risk, the ATO may proceed to a transfer pricing audit.
Where the ATO imposes a transfer pricing adjustment, the Australian penalty regime may apply to
any shortfall in tax. As from 1 July 2015, penalties typically are calculated as an additional amount
of 50% of the tax shortfall arising from an adjustment (or up to 100%, where a taxpayer does not
have a RAP and enters into a scheme with a dominant purpose of obtaining a transfer pricing
benefit). In addition to penalties, the ATO also can apply an interest charge to the tax shortfall on a
daily compounding basis. The ATO has the discretion to reduce penalties and interest (e.g. where
it considers the taxpayer has a reasonably arguable position through appropriate transfer pricing
documentation, penalties can be reduced to 10%).
The ATO maintains an advance pricing arrangement (APA) program covering unilateral, bilateral
and multilateral APAs. Under an APA, taxpayers can obtain certainty on the application of the
arm’s length principle to their cross-border dealings with related parties.
Thin capitalization
Thin capitalization rules operate to limit interest deductions claimed against Australian assessable
income for both foreign-controlled Australian investments (inward investors) and Australian entities
investing overseas (outward investors), where an entity’s debt exceeds a prescribed level.
Taxpayers that, together with their associates, have interest deductions of less than AUD 2 million,
or outward investing entities with 90% or more of total average value of assets consisting of
Australian assets, are exempt from the thin capitalization rules.
For income years commencing on or after 1 July 2014, taxpayers are able to determine their
maximum allowable debt by choosing one of the following tests:
•  “Safe harbor” test: The test effectively applies a prescribed debt-to-equity ratio of 60%.
Different ratios apply to financial institutions.
•  Worldwide gearing test: This test allows taxpayers to use debt levels equivalent to those of
its worldwide group, broadly determined by reference to the group’s consolidated
accounts; or.
•  Arm’s length debt test: This test requires an analysis of the maximum amount of debt the
entity could reasonably have borrowed from commercial lending institutions subject to
specific assumptions and conditions set out in the law.
The thin capitalization rules generally follow the approach of accounting standards in valuing
assets, liabilities and equity capital (even if an entity is not otherwise required to prepare
accounts). For income years commencing on or after 1 January 2009, taxpayers are required to
prepare accounts based on AIFRS, with some modifications.
Controlled foreign companies
Under the CFC rules, attributable Australian shareholders of a CFC are subject to taxation on an
accruals basis on their proportionate share of the CFC’s “attributable income.” Attributable income
generally refers to passive-type income such as dividends, interest, rent and royalties. It also
includes tainted sales income, which broadly refers to income arising from sales transactions
between the CFC and its related entities, and tainted services income, which broadly refers to
services provided to Australia. Tainted sales and services income are intended to target the
deflection of income from the Australian tax base. The general policy intention is to exclude active
business income from attributable income.
For a foreign company to qualify as a CFC, one of three control tests must be satisfied: (1) five or
fewer Australian residents (including associates) must hold 50% or more of the company; (2) a
single Australian entity (including associates) must hold at least 40% of the company, with no other
group controlling the company; or (3) five or fewer Australian entities (including associates) must
effectively control the company.
If the CFC rules apply, the Australian shareholder will include in its assessable income its share of
attributable income from the CFC, calculated at the end of the CFC’s statutory accounting period.
The calculation of attributable income is similar to branch-equivalent calculations, except specific
modifications are made to the Australian tax rules. Various exceptions to attribution apply. If
passive income and tainted sales and services income comprise less than 5% of gross turnover,
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the CFC does not need to attribute any income. If the CFC is tax resident in any of seven listed
countries (Canada, France, Germany, Japan, New Zealand, the UK and the US), only specific
types of passive income subject to concessional taxation in these foreign countries are attributable.
Transferor trust regime
Under the transferor trust regime, an Australian resident is subject to taxation on an accruals basis
on the attributable income of a foreign trust to which the Australian resident has transferred
property or services. The Australian resident is subject to attribution if it has transferred property or
services to either: (1) a nonresident, nondiscretionary trust for inadequate or no consideration; or
(2) a nonresident discretionary trust. Where the transferor trust rules apply, the Australian resident
transferor includes its share of the net income of the trust (with some modifications) in its
assessable income for the period in which it was a resident.
General anti-avoidance rule
Australia has a GAAR (referred to as Part IVA) directed at schemes entered into for the purpose of
obtaining tax benefits. The following requirements generally must be met for Part IVA to apply:
•  There must be a “scheme;”
•  A taxpayer must have obtained a “tax benefit” in connection with the scheme; and
•  The sole or dominant purpose of any person who entered into or carried out the scheme,
or any part of the scheme, must have been to enable the taxpayer to obtain that tax
benefit.
Part IVA gives the Commissioner of Taxation the power to cancel the tax benefit arising from a
scheme, as well as to impose interest and penalties.
Amendments were made to Part IVA in 2012 to address what the government perceived to be
weaknesses with Part IVA that may have reduced its effectiveness in countering tax avoidance
arrangements. The amendments were targeted at addressing weaknesses in the concept of “tax
benefit.”
The determination of a tax benefit requires a comparison between the scheme itself and an
alternative scenario. There are two bases that can demonstrate the existence of a tax benefit:
1)  The first basis requires a comparison of the tax consequences of the scheme with the tax
consequences that “would have” resulted if the scheme had not occurred (the “annihilation
approach”), i.e. the alternative scenario involves the deletion of the scheme.
2)  The second basis requires a comparison of the tax consequences of the scheme with the
tax consequences that “might reasonably be expected to have” resulted if the scheme had
not occurred (the “reconstruction approach”). The alternative scenario under this basis
requires speculation about the state of affairs that would have existed if the scheme had
not been entered into or carried out.
The legislation as amended remains untested at the time of writing.
3.7 Administration
Tax year
Taxable income generally is determined by reference to a year of income, which typically runs for
the 12 month period from 1 July to 30 June. A different year of income may be adopted by
companies in certain circumstances, with approval from the ATO.
Filing and payment
Australia operates a self-assessment system, under which companies self-assess their tax liability.
Under the pay-as-you-go (PAYG) collection system, most businesses make quarterly payments
comprising company income tax, FBT, GST and personal income tax withheld from employees’
wages. The quarterly payments generally are due four weeks after the close of each quarter. With
effect from 1 January 2014, some large entities are being transitioned into a monthly PAYG
installment system over a four-year period, depending on the size and type of the entity.
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Sole traders and partners, small businesses with low tax obligations and companies and
superannuation (pension) funds with turnover of less than AUD 2 million, may elect to have the
ATO calculate their quarterly PAYG installments from the previous available year’s income,
adjusted for movements in GDP for the period. Any balance due is payable with the annual income
tax return.
Tax returns generally must be filed on an annual basis, based on taxable income for a year of
income. The due date for filing the annual tax return is 15 January for large/medium-size
companies (annual turnover exceeding AUD 250 million and AUD 2 million, respectively) and 28
February for all other entities, following the end of the year of income. Extensions to file the return
may be granted in certain circumstances.
Consolidated returns
A tax consolidation regime allows wholly owned groups of companies, trusts and partnerships to
elect to be taxed as a single consolidated entity (“tax consolidated group”). The regime focuses on
the tax consolidated group as the tax entity and disregards intragroup transactions for income tax
purposes. The law reduces impediments to group restructuring, allows for pooling of losses within
the group and allows tax-free movement of assets within the group without any formal rollover
requirements. It allows the group to buy back shares without triggering a capital gain or loss and to
liquidate a member entity without triggering deemed dividends or capital gains or losses. It also
eliminates double taxation, where gains are taxed when realized and again on the disposal of
equity.
There also are rules allowing certain Australian resident, wholly owned subsidiaries of a foreign
company to form a tax consolidated group known as a multiple entry consolidated group or MEC
group.
The election to form a tax consolidated group or an MEC group is optional. However, once made,
the election is irrevocable.
Statute of limitations
The amendment period for Australian income tax purposes is four years for large business
taxpayers, taxpayers with complex tax affairs and certain “high risk taxpayers.” For corporate
taxpayers, this period commences from the date the taxpayer files its income tax return (deemed
assessment). For other taxpayers (small business entities and individuals), the time limit for
reviewing an assessment is two years from the date the Commissioner of Taxation issues the
notice of assessment. However, as noted above, the Commissioner has seven years to make a
transfer pricing adjustment and there are no time limits in certain situations (e.g. in the case of
fraud or evasion or to give effect to a court order). In addition, the Commissioner may amend an
assessment after the four-year (or two-year) period if, before the expiration of the period, the
taxpayer applied for an amendment in the approved form or successfully requested a private
ruling. If the Commissioner starts to examine a taxpayer's affairs in relation to an assessment and
has not completed this process by the end of the limited amendment period, that period may be
extended with the consent of the taxpayer or if a court order is granted.
Tax authorities
The ATO, headed by the Commissioner of Taxation, administers federal tax laws and collects
revenue arising from income tax, GST (collected on behalf of state/territory governments),
superannuation and excise tax. The ATO also administers a range of benefits and refunds
including income tax and GST refunds, excise grants, family tax benefits and superannuation
guarantees.
Each state/territory has its own revenue office, which collects a range of state/territory taxes and
duties, including payroll tax, land tax and stamp duty.
Rulings
The ATO may issue public or private rulings. Rulings generally are binding on the ATO where they
apply to a taxpayer and the taxpayer relies on the ruling by acting in accordance with the ruling.
Public rulings may apply to all entities or a class of entities, either generally or in relation to a
particular arrangement. The ATO will issue a private ruling on the tax consequences of a specific
scheme at a taxpayer's request. However, only the taxpayer requesting the private ruling can rely
on the ruling. As mentioned above, the ATO also operates an APA program, under which
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taxpayers can obtain certainty on the application of the arm’s length principle to their cross-border
dealings with related parties.
3.8 Other taxes on business
Petroleum resource rent tax (PRRT)
PRRT is a profits-based tax levied at the rate of 40% on profits generated from all onshore and
offshore Australian petroleum projects excluding the joint petroleum development area (JPDA) as
defined in the Timor Sea Treaty). The profits are taxed on the sale of marketable petroleum
commodities (MPCs).
Broadly, the taxable profit of each petroleum project that is subject to PRRT is the amount of
assessable receipts derived, less eligible deductible expenditure incurred and transferred
exploration expenditure. A petroleum project effectively becomes liable to pay PRRT once its
aggregate assessable receipts exceed all accumulated eligible project expenditure. Undeducted
amounts are uplifted at prescribed rates and carried forward to be applied against assessable
receipts derived in later years. PRRT payments generate income tax deductions, while royalties
and other government resource charges are in effect creditable against assessable receipts of
petroleum projects to avoid double taxation.
Minerals resource rent tax (MRRT)
The minerals resource rent tax (MMRT) applied from 1 July 2012 until 1 October 2014.
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4.0 Withholding taxes
4.1 Dividends
Dividends paid by Australian resident companies out of profits already subject to Australian tax at
the company income tax rate may carry franking credits for the Australian corporate income tax
paid. Dividends are referred to as “fully franked,” “partially franked” or “unfranked,” depending on
the extent to which a company has chosen to use its franking credits. To the extent that
distributions to nonresidents are unfranked distributions, they are subject to withholding tax at the
statutory rate of 30%. This rate may be reduced under the provisions of a tax treaty.
Australia’s tax treaties provide for a withholding tax rate of between 0% and 15% on dividends paid
to nonresident shareholders. Australia and New Zealand have extended their respective domestic
dividend imputation systems to include companies resident in the other country (referred to as
“Trans-Tasman imputation”).
Unfranked dividends may be paid to nonresident shareholders free of Australian withholding tax
where the dividends are paid out of “conduit foreign income.” Amounts considered to be conduit
foreign income generally are amounts of foreign income and gains that are earned by or through
an Australian company and not taxed in Australia at the entity level. Some examples of conduit
foreign income include certain eligible foreign equity distributions received by an Australian
company and capital gains on the disposal of shares in a foreign company with an underlying
active business.
Unfranked dividends paid to resident shareholders are subject to PAYG withholding if the
shareholder has not provided its tax file number (TFN) to the payer.
4.2 Interest
Interest paid by an Australian company to a nonresident generally is subject to a 10% withholding
tax. There are some exemptions from interest withholding tax, including for certain publicly offered
debentures.
Australian interest withholding tax may be reduced under an applicable tax treaty, although
typically the treaty rate also is 10%. In some cases, an interest withholding tax exemption applies
for interest paid to foreign financial institutions or government bodies under specific treaties.
Interest paid to residents is subject to PAYG withholding if the resident has not provided its TFN to
the payer.
4.3 Royalties
Royalties are subject to withholding tax at 30%. Royalties paid by Australian businesses generally
may be deducted in computing taxable income. The rate of royalty withholding tax will typically be
reduced under a tax treaty.
4.4 Branch remittance tax
Australia does not levy a branch remittance tax.
4.5 Wage tax/social security contributions
Under Australia’s compulsory superannuation legislation (Superannuation Guarantee (SG)
legislation), employers are required to contribute 9.5% of each employee’s “ordinary time earnings”
(up to a quarterly salary cap of AUD 50,810 for 2015/2016) to an Australian complying
superannuation fund or retirement savings account (RSA). There are certain limited exemptions
from these requirements. Contributions must be made quarterly, based on the salary payments
made to the employee in the relevant quarter.
Many employees have the option to choose the superannuation fund/retirement savings account
(RSA) that the employer pays into. Whether an employee is eligible to choose his/her
superannuation fund/RSA generally depends on the type of award or industrial agreement under
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which the employer employs the employee. Where an employer is required to offer its employee
superannuation choice, the employer must provide the employee with the relevant documentation
to enable the employee to make a choice. If the employee does not make a choice, the employer
can pay the SG contributions for that employee into a default fund nominated by the employer.
Since 1 January 2014, if the employee does not choose a fund, the employer has been obliged to
pay the contributions into a fund with a “MySuper” account.
If an entity uses individual contractors wholly or principally for their labour, and pays them for hours
worked rather than to achieve a result, the entity must pay superannuation contributions for those
individual contractors as if they were employees.
The minimum required SG is scheduled to increase progressively to 12% by 1 July 2025, with the
government currently proposing to freeze the rate at 9.5% until 1 July 2020. The SG legislation
sets out the minimum superannuation obligations of an employer. Some employers are required to
satisfy other employment/award obligations, which may include additional superannuation
requirements. If an employer has additional employment/award obligations to make
superannuation contributions into a specified fund or RSA, these contributions usually will count
toward meeting the employer’s SG obligations, as will “salary sacrifice” contributions.
4.6 Distributions from Managed Investment Funds
MITs are required to withhold tax from “fund payments” made directly to foreign residents
(regardless of whether the recipient is an individual, a company or an entity acting in the capacity
of a trustee).
If a trust qualifies under the MIT rules, a final withholding tax of 15% is levied on fund payments
made to foreign residents. The reduced withholding tax rate applies only to investors resident in
eligible countries, i.e. countries that have concluded a tax treaty with Australia that includes an
exchange of information (EOI) article or countries that have concluded an exchange of information
agreement with Australia.
For investors resident in non-EOI countries, there is a 30% final withholding tax.
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5.0 Indirect taxes
5.1 Goods and services tax
Goods and services tax (GST) is a broad-based consumption tax on supplies of goods and
services in Australia. GST is charged at each step in the supply chain, with entities that are
registered for GST including GST in the price of taxable goods and services they sell. There also
are supplies that are nontaxable, where GST is not included in the price. These include “input
taxed” supplies (e.g. financial supplies, leasing of residential premises and the sale of residential
premises that are not “new,” and “GST-free” supplies (e.g. sale of going concerns, and certain
exports of goods and services). The standard rate of GST is 10%.
An entity that is registered for GST generally is able to claim an input tax credit (a GST refund) for
any GST included on business inputs. The major exception to this principle is where the business
inputs relate to the making of input taxed supplies (see above). As a general rule, an entity will be
restricted from claiming input tax credits for the GST incurred on business inputs that relate to the
making of input taxed supplies. However, there are several concessions available to reduce the
impact of this (e.g. the financial acquisitions threshold test, a borrowings concession and reduced
input tax credits, equal to 75% or 55% of the input GST incurred, for certain outsourced services).
An entity is required to register for GST if it is carrying on an enterprise and its turnover for GST
purposes exceeds the registration turnover threshold. The registration turnover threshold is
exceeded where an entity’s GST turnover (i.e. the sum of the value of the taxable and GST-free
supplies the entity has made in the current and previous 11 months, or intends to make in the
current and next 11 months) is equal to or greater than AUD 75,000 (AUD 150,000 for nonprofit
entities). However, entities may choose to register for GST even if their GST turnover is below the
registration threshold. Nonresident entities may choose to register for GST for the purpose of
claiming a refund of GST on business inputs (input tax credits) incurred in Australia.
Entities registered for GST must account for GST obligations on a Business Activity Statement
(BAS) submitted to the ATO at the end of each tax period. If an entity has annual turnover of less
than AUD 20 million, it will have quarterly tax periods, unless it has elected to have monthly tax
periods. If an entity has an annual turnover of AUD 20 million or more, it will have monthly tax
periods and be required to electronically file its monthly BAS. Small businesses voluntarily
registered for GST are allowed to report and pay GST annually rather than quarterly, to reduce
compliance costs.
5.2 Capital tax
Australia does not levy capital duty.
5.3 Real estate tax
Municipal councils within the states and territories levy rates and other charges on land owners to
fund various local services, facilities and infrastructure (e.g. local roads, parks, community facilities
and activities, waste collection, etc.).
Council rates for a property are calculated by reference to the property’s valuation.
All but one of the states and territories levy land tax on the land owned within their jurisdiction.
Some exemptions apply to certain categories of land. Land tax generally is calculated by reference
to the site (or “unimproved”) value of the land. Graduated rates of land tax apply, depending on the
value of land, with the rates and thresholds varying between the states and territories that levy the
tax (top rates range between 1.23% and 3.7%).
Municipal council rates and charges and state or territory land tax generally are deductible for
income tax purposes (see also under Stamp duty).
5.4 Transfer tax
See under Stamp duty.
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5.5 Stamp duty
The states/territories impose stamp duty at rates of up to 5.75% on the transfer of real property
and other business property (although New South Wales levies premium residential property duty
at rates of up to 7%). Rates vary between states/territories and between classes of property
transferred. Stamp duty also is imposed on the indirect transfer of “land” held by certain companies
and unit trust schemes, at rates of up to 5.75%, depending on the number of shares/units
transferred. These land-rich/landholder duty provisions generally have an extended definition of
land to cover mining rights and interests in land, such as fixtures and buildings.
5.6 Customs and excise duties
Customs duty is payable on goods imported into Australia, although there are many tariff lines that
are duty free. The most common duty rate applied to dutiable goods is currently 5%. Duty
concessions are available for equipment imported for large-scale capital projects, where there is
no manufacture of substitutable products in Australia, and under various bilateral and multilateral
free trade agreements.
GST-registered entities can register to claim “fuel tax credits” for the excise duty or customs duty
(fuel tax) included in the price of various fuels used for eligible business activities in machinery,
plant, equipment and certain vehicles. Fuel tax credits are claimed in the entity’s periodic BAS.
Excise duty is a tax on alcohol, tobacco and petroleum products produced or manufactured in
Australia. An entity may not manufacture, store and/or deal in these goods before excise duty has
been paid unless the entity has an excise license.
5.7 Environmental taxes
A carbon pricing mechanism, which commenced on 1 July 2012 to create incentives to reduce
Australia’s carbon pollution and invest in renewable and clean energy technologies, was repealed
with effect from 1 July 2014.
The government has implemented a direct action plan designed to provide financial incentives for
businesses and others to reduce emissions, the main feature of which is the creation of the
emissions reduction fund. Broadly, businesses apply and submit tenders for projects that will
reduce or offset their emissions.
Once registered, project proponents can participate in auctions to sell their emission reductions.
Successful bidders enter into contracts with the Clean Energy Regulator, which agrees to
purchase the bidder’s Australian carbon credit units (ACCUs). The projects are then undertaken
and emissions reductions reported to the clean energy regulator, who issues credits to the project
proponents. The project proponents then receive payment from the clean energy regulator for
credits at the contract price, per the schedule in the contract. The proceeds of selling an ACCU will
be “assessable income on a revenue account” in the income year the ACCU is sold or
surrendered.
5.8 Other taxes
Employers are required to pay FBT on the value of fringe benefits (such as motor vehicles, lowinterest loans and entertainment) provided to their employees, at a rate of 49% on the grossed up
value of each benefit. FBT is deductible against assessable company income tax; other nontaxable
benefits may not be deductible.
Payroll tax, a state and territory tax levied on employers, is calculated based on salaries and
wages paid to employees, but also can apply to certain contractor payments, directors’ fees, etc.
The taxable base is reduced by certain exemptions and allowances. Depending on the state or
territory, the payroll tax rate ranges from 4.75% to 6.85%.
The wine equalization tax (WET) is a value-based tax applied to wine consumed in Australia. It
applies to assessable dealings with wine (unless an exemption applies) including wholesale sales,
untaxed retail sales and applications for own use. The WET rate is 29% of the wholesale sales
value or on an equivalent value when there is no wholesale sale.
State and territory governments levy royalties on most mineral production.
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6.0 Taxes on individuals
Individuals in Australia are subject to various types of tax such as income tax, withholding tax, the
Medicare levy and real property tax (levied by the states). The income tax rates progressively
increase with taxable income. The rates of tax differ for resident and nonresident individuals.
Australia Quick Tax Facts for Individuals
Income tax rates  Progressive to 47%
Capital gains tax rates  Progressive to 47%
Basis  Worldwide (residents)/Australian-source (nonresidents)
Double taxation relief  Yes
Tax year  1 July-30 June
Return due date  31 October
Domestic withholding tax
−  Dividends
−  Interest
−  Royalties
0% (residents where TFN quoted)/30% (unfranked
dividends paid to nonresidents)
0% (residents where TFN quoted)/10% (nonresidents)
0% (residents)/30% (nonresidents)
Net wealth tax  No
Superannuation  9.5% of earnings
Medicare levy  2% of taxable income (residents only)
Inheritance tax  No
Real estate tax  See stamp duty
Stamp duty  Varies, up to 7%
Goods and services tax  10%
6.1 Residence
For tax purposes, an individual is resident if he/she ordinarily resides in Australia or satisfies one of
three statutory tests: (1) is domiciled in Australia (unless the Commissioner of Taxation is satisfied
that the individual’s permanent place of abode is outside Australia); (2) has spent more than half
the tax year in Australia (unless the Commissioner of Taxation is satisfied that the individual’s
usual place of abode is outside Australia and he/she does not intend to take up residence in
Australia); or (3) is a contributing member (or the spouse or child younger than 16 years of such a
member) to the superannuation fund for officers of the Commonwealth government.
6.2 Taxable income and rates
Resident taxpayers generally are taxed on worldwide income, with an offset for foreign tax paid on
double taxed income up to the amount of Australian tax payable on that income.
A “temporary resident” regime provides temporary residents with a tax exemption for most foreignsource income and capital gains and for interest withholding tax obligations associated with foreign
liabilities. A temporary resident for tax purposes is an individual who meets all of the following
criteria: holds a temporary visa granted under the Migration Act 1958; is not an Australian resident
within the meaning of the Social Security Act 1991 and does not have a spouse who is an
Australian resident within the meaning of the Social Security Act 1991. A temporary tax resident
generally is liable to Australian tax on worldwide employment income but only in respect of
investment income or gains from Australian sources. Foreign investment income derived by a
temporary tax resident generally is not subject to Australian tax, and capital gains and losses
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(except gains on the disposal of taxable Australian property and certain employee share plan
gains) are disregarded for CGT purposes.
Nonresidents in Australia are taxable only on income sourced in Australia, excluding dividends,
interest and royalties, which are subject to withholding tax at source. Nonresidents are exempt
from the Medicare levy and do not qualify for certain tax offsets, such as the dependents tax offset
and the net medical expenses offset. Similar to temporary tax residents, a CGT liability will arise
only on the disposal of assets that are considered taxable Australian property. Assets that are
regarded as taxable Australian property include broadly:
•  Direct or indirect interests in Australian real property;
•  Nonportfolio interests (at least 10% holdings) in companies or trusts where the market
value of the company’s/trust’s taxable Australian property exceeds the market value of its
other assets;
•  Rights or options to acquire Australian real property;
•  Certain mining rights;
•  CGT assets used in carrying on a business through an Australian PE; and
•  Assets that the taxpayer has elected at the time of ceasing residency to be considered
taxable Australian property to defer any CGT liability until actual sale.
Taxable income
Taxable income includes employment income (salaries, wages, bonuses etc.), business income,
dividends, interest, rent and royalties, less other expenses incurred in producing assessable
income and certain specific deductions that are allowable.
Employers pay FBT on noncash benefits that may be provided to individual employees and,
therefore, the individual employee is not subject to income tax on such benefits. A partial or full
exemption from FBT may apply to certain benefits provided to expatriate employees, including
relocation travel costs, removal expenses, child education costs and annual home leave travel.
Franked dividends paid by resident companies carry franking credits that shareholders who are tax
residents of Australia may use to offset their personal tax liability. Imputation credits that exceed a
tax resident individual’s tax liability give rise to a refund.
Nonresidents are subject to withholding tax on dividends, interest, certain managed investment
fund income and royalties from Australian entities. Where a dividend paid to a nonresident is a
franked dividend carrying franking credits, it is exempt from this withholding tax and is not subject
to any further Australian tax. The franking credits are nonrefundable to the nonresident.
Capital gains on the disposal of assets acquired after 19 September 1985 are included in
assessable income. Where assets have been held for less than 12 months prior to disposal, the
entire capital gain is included in taxable income. Where an individual has held an asset for more
than 12 months before disposal, the individual will be eligible for the 50% CGT discount, such that
50% of the capital gain from the disposal of the asset will be disregarded.
Nonresidents and temporary residents are ineligible for the 50% CGT discount in respect of capital
gains that accrue after 8 May 2012. The 50% CGT discount is available for capital gains that
accrued before this time, but only where the nonresident or temporary resident chooses to obtain a
market valuation of his/her CGT assets as at 8 May 2012.
As noted above, temporary tax residents and nonresidents of Australia are subject to CGT only on
the disposal of taxable Australian property. Individuals resident in Australia who become
nonresidents are deemed to have disposed of some of their assets (generally those that are not
considered taxable Australian property) for CGT purposes, which may mean that they become
liable to pay CGT. However, such departing residents can elect not to have this deemed disposal
apply. If they do eventually dispose of the assets, the whole period of ownership, including any
period in which they were not an Australian resident, will be taken into account in calculating a gain
or loss for CGT purposes.
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Deductions and reliefs
Expenses may be taken as deductions if they are incurred in gaining or producing assessable
income. Charitable donations to Australian-registered charities may be tax deductible. Expenses of
a capital, private or domestic nature are not deductible.
Australian residents are allowed some tax offsets, including for dependents; low income earners;
pensioners; and in respect of net medical expenses, subject to certain thresholds.
Rates
Personal income tax rates are progressive up to 47%. A tax-free threshold of AUD 18,200 applies
for resident taxpayers. From 1 July 2014 until 30 June 2017, the Temporary Budget Repair Levy is
payable by individuals whose taxable income exceeds AUD 180,000 at a rate of 2% on the excess
over AUD 180,000.
6.3 Inheritance and gift tax
There is no inheritance or gift tax in Australia.
6.4 Net wealth tax
There is no net wealth tax in Australia.
6.5 Real property tax
The states/territories impose stamp duty at rates of up to 7% on the transfer of real property and
other business property (although the top rate in most of the states and territories does not exceed
5.5%). Rates vary between states and territories and between classes of business property
transferred.
Municipal councils within the states and territories levy rates and other charges on land owners to
fund various local services, facilities and infrastructure (e.g. local roads, parks, community facilities
and activities, waste collection, etc.). Council rates for a property are calculated by reference to the
property’s valuation.
All but one of the states and territories levy land tax on the land owned within their jurisdiction.
Some exemptions apply to certain categories of land, including a person’s principal place of
residence. Land tax generally is calculated by reference to the site (or “unimproved”) value of the
land. Graduated rates of land tax apply, depending on the value of land, with the rates varying
between the states and territories that levy the tax (from 0.1% to 3.7%).
Depending on the use of the property, municipal council rates and charges and state or territory
land tax may be deductible for income tax purposes.
6.6 Social security contributions
Employers are required to make mandatory superannuation contributions on behalf of their
employees, currently at a rate of 95% of the employee's “ordinary time earnings” (to a maximum
earnings base, currently AUD 50,810 per quarter from July 2015). An exemption applies for certain
employees who remain covered by their home country social security systems, where Australia
has a bilateral social security agreement with that country and the employer obtains a certificate of
coverage.
In addition to income tax, a 2% levy is payable for the 2015-2016 income year on the taxable
income of Australian residents (who are eligible for Medicare benefits in Australia) to partially fund
Medicare, a universal health program that provides basic medical and hospital care free of charge,
and to fund the National Disability Insurance Scheme. Relief is available to low-income taxpayers.
A further Medicare surcharge (up to 1.5%) may be imposed on taxpayers that have insufficient
qualifying private hospital insurance.
6.7 Compliance
The tax year is 1 July to 30 June.
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Broadly, taxpayers who paid tax under the pay-as-you-go withholding system or had tax withheld
on payments made to them are required to file an income tax return. A tax-free threshold of AUD
18,200 applies for resident taxpayers. The return must be filed by 31 October for the income year
ending on 30 June of the same calendar year (unless the individual is on a tax agent lodgment
program and is eligible for an extended filing deadline).
Each taxpayer must file a return; joint returns are not permitted.
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7.0 Labor environment
7.1 Employee rights and remuneration
The legal framework of Australia’s employment system is a complex mixture of state and federal
legislation, the case law of the common law courts, legally binding industrial instruments (including
modern awards, enterprise agreements) and the decisions of state and federal industrial tribunals.
A complicated combination of federal and state legislation addresses various workplace issues,
including maximum working hours, working conditions (such as occupational health and safety),
leave entitlements, workers’ compensation, equal employment opportunity and industrial rights.
Employees who are employed by incorporated entities (whether Australian or foreign) that carry on
trade or commerce in Australia, are covered by the federal workplace relations system. Most state
jurisdictions signed an agreement in 2009 to refer their powers to the Commonwealth for the
purpose of creating a truly national industrial relations system. A small number of employees who
are employed, for example, by contractors or government bodies in certain states, do not fall within
the federal system.
Industrial disputes are regulated by federal legislation, which sets out a framework for taking
protected industrial action in the course of workplace bargaining, and recourse for employees in
circumstances where industrial action is not protected. The Fair Work Commission has jurisdiction
to hear and conciliate industrial disputes between employers, employees and registered trade
unions.
Modern awards provide for minimum employment terms and conditions for employees in a certain
occupations or industries.
Working hours
Under federal legislation, employees must not be required to work beyond a maximum of 38 hours,
per week plus “reasonable” additional hours. If an employee is not covered by a modern award or
enterprise agreement, the employer and employee may agree in writing to average these hours
over a specified six-month period. If an employee is covered by a modern award or enterprise
agreement, averaging may take place only in accordance with that industrial instrument. The
National Employment Standards, set out in the Fair Work Act 2009 (Commonwealth) (FWA 2009),
do not limit the period over which hours may be averaged under such an instrument. In
determining “reasonable additional hours,” a court will review a number of factors, including the
nature of the employment, the employee’s personal circumstances and operational requirements.
Overtime compensation may be payable to regulated employees, i.e. employees who are covered
by an industrial award or collective workplace or enterprise agreement. Penalty rates also are
payable to regulated employees for work performed outside ordinary working hours, including on
weekends and public holidays. All overtime and penalty rates are dependent on the terms of the
applicable industrial instrument or more generous contractual agreements entered into with the
employee.
7.2 Wages and benefits
The Minimum Wage Panel of Fair Work Australia sets and reviews the federal minimum wage. The
federal minimum wage from 1 July 2015 is AUD 17.29 per hour.
Pensions
The SG is a compulsory, tax-deductible employer contribution to employees’ accounts held by an
Australian complying superannuation fund/retirement savings account (RSA). To be eligible to
receive SG contributions, employees must be aged at least 18 and paid AUD 450 or more per
calendar month. There is no maximum SG age limit.
Companies that fail to make the required contribution must pay a nondeductible levy. This levy will
be higher than the SG contributions that were payable for an employee, as the contributions are
paid on the employee’s “ordinary times earnings,” while the levy is based on the SG rate applied to
the employee’s total salary/wage and includes an interest component and administration fee.
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Employers pay the SG contribution into employees’ accounts on their behalf, at a rate of 9.5% of
their ordinary time earnings (calculated on a maximum base of AUD 50,810 per quarter from July
2015).
Employees also may make voluntary contributions either from their after-tax income or from their
pre-tax income through a “salary sacrifice” arrangement concession. Employees may not access
the funds until they have reached their preservation age and have retired, usually at age 55 or
older. A person who still is working may make contributions up to age 75.
An individual’s preservation age is based on their date of birth, as follows:
Date of birth  Preservation age
Before 1 July 1960  55
1 July 1960 – 30 June 1961  56
1 July 1961 – 30 June 1962  57
1 July 1962 – 30 June 1963  58
1 July 1963 – 30 June 1964  59
From 1 July 1964  60
Superannuation funds are required to pay tax on both the employer contributions and employees’
salary sacrificed contributions at the concessionary rate of up to 15%. In some circumstances, the
employer contributions and the employee’s salary sacrificed contributions (referred to collectively
as “concessional contributions,” which also include certain other amounts) are taxed a further
31.5% where those concessional contributions exceed the concessional contribution cap
threshold, which is AUD 30,000 for the year starting 1 July 2015 (or AUD 35,000 where the
individual was aged 49 or more as at 30 June 2015). Since 1 July 2013, employees have been
taxed personally at their marginal tax rate on the excess contribution, rather than subject to an
effective tax rate of 46.5%. If the employee does not elect to remove the excess contributions
taxed to him/her personally from the fund, the excess concessional contribution is counted towards
his/her nonconcessional contribution cap. Where the employee also has exceeded his/her
nonconcessional contribution cap for a particular year, the excess contributions are taxed at a
further 46.5%.
An additional 15% contributions tax surcharge applies to high-income individuals where a defined
adjusted taxable income is greater than AUD 300,000.
Individuals temporarily in Australia from certain countries and who meet certain criteria may be
eligible for exemption from the Australian compulsory SG contributions regime. Australia currently
has bilateral social security agreements with Austria, Belgium, Canada, Chile, Croatia, Cyprus,
Czech Republic, Denmark, Finland, Germany, Greece, Hungary, Ireland, Italy, Japan, Korea,
Latvia, the Former Yugoslav Republic of Macedonia, Malta, Netherlands, New Zealand, Norway,
Poland, Portugal, Slovak Republic, Slovenia, Spain, Switzerland and the US.
Departing nonresidents who have held a temporary residence visa may take their superannuation
with them; the government scales back tax concessions provided.
Contributions may be made in children’s names and spouses may split their concessional
contributions.
The low income super contribution (LISC) is a government super payment of up to AUD 500 per
financial year for low income earners. The contribution is the lesser of 15% of the concessional
(before tax) contributions made by the employer or the employee, and AUD 500. Where eligible,
the minimum contribution payment for a financial year is AUD 10. The LISC has been repealed
with effect from 5 September 2014 but will continue to be payable in respect of concessional
contributions made up to and including the 2016-17 year. Determinations of LISC will cease from 1
July 2019.
The government has a super co-contribution regime. For the year ending 30 June 2015, the
maximum government co-contribution is AUD 500 to the superannuation savings of low income
earners (AUD 35,454 threshold) that make personal after-tax contributions into superannuation.
Where eligible, the minimum co-contribution payment is AUD 20.
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Eligible employees may choose the fund into which their compulsory superannuation (pension)
contributions are paid by their employer. Most commonly, contributions are paid into either
company-sponsored funds, retail funds or “industry” funds, which usually are set up under the
auspices of trade unions. An employee also may choose to have a self-managed superannuation
fund (SMSF) where he/she is responsible for the investments, compliance and administration of
the fund. If an employee on a temporary resident visa chooses an SMSF, the employee will need
to consider a number of issues relating to the SMSF when he/she leaves Australia. If these issues
are not addressed appropriately, the SMSF may not be subject to concessional tax treatment.
Other benefits
As a consequence of the FWA 2009, there are 10 legislated National Employment Standards
(NES) for all employees covered by the federal system:
•  Maximum weekly hours of work: As noted above, employees must not be required to work
more than 38 hours per week plus reasonable additional hours, although there are
provisions for some flexibility.
•  Requests for flexible working arrangements: An employee who is a parent or caregiver of
a child under school age or a child under 18 with a disability, has a disability, is a carer
(within the meaning of the Carer Recognition Act 2010), is 55 years or older or is
experiencing domestic violence (or assisting an immediate family or household member
experiencing domestic violence) may request a change in working arrangements from
his/her employer (e.g. changes in hours, patterns or location of work). Employees must
have worked for the employer for at least 12 months before making such a request (or
must be long term casuals with an expectation of ongoing employment) and a request can
only be refused by the employer on reasonable business grounds.
•  Parental leave and related entitlements: Up to 24 months of unpaid parental leave (per
employee) is available for the birth or adoption of a child. This entitlement applies to all full
and part-time employees with 12 months of continuous service and to casual employees
who have been employed on a regular and systematic basis for at least 12 months and
who have a reasonable expectation of ongoing employment. Employees are entitled to
return to their position following the period of the leave or a position for which they are
qualified and capable of performing (even if a lesser salary) if their original position has
ceased to exist. Employees also are entitled to request a return to part-time work after
parental (or adoption) leave to assist in the care of the child.
•  Annual leave: Employees are entitled to 20 days of paid annual leave (calculated pro rata
for part-time employees) per year, plus an additional week for shift workers. Annual leave
accumulates from year to year if not taken and accrues based on ordinary hours of work.
Employers may require an employee to take a period of paid annual leave, but only if such
requirement is reasonable. Certain employees are able to “cash out” annual leave by
mutual agreement.
•  Personal leave and compassionate leave: An employee is entitled to 10 days per year,
which can be taken as sick or carer's (an employee taking leave to look after a member of
the immediate family or household) leave. This leave is cumulative and is prorated for
employees who have not completed 12 months of service. There is an additional two days
of unpaid carer’s leave available (once all paid personal leave has been exhausted) for
unexpected emergencies. Two further days of paid compassionate leave are available for
each occasion where an employee’s immediate family or household member contracts an
illness or sustains an injury that poses a serious threat to life, or dies.
•  Community service leave: An employee is entitled to be absent from his/her place of
employment if he/she is engaged in an eligible community service activity (e.g. jury service
or volunteer emergency services activities).
•  Long-service leave: Long service leave in certain pre-reform industrial instruments (e.g.
collective workplace agreements) is incorporated as part of the NES. Pre-existing state
and territory long service leave legislation generally continues to apply. There is no
common system for long service leave. State and territory legislation generally provides for
paid long-service leave of two months after 10 years of service or 13 weeks after 15 years
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of service, with some pro rata entitlements (partial leave allocation based on period of
employment).
•  Public holidays: Employees generally are entitled to be absent on prescribed public
holidays (there are eight days prescribed as public holidays under the NES, and some
additional days of public holidays are prescribed by individual states and territories).
•  Notice of termination and redundancy pay: Employers must give employees a minimum
period of prior notice in writing before terminating employment. This notice period depends
on the employee's period of service. Employers must pay redundancy benefits to
employees who are terminated on the grounds of redundancy in accordance with a scale
which varies depending on the years of service.
•  Fair work information statement: The Fair Work Information Statement (which sets out
certain information including information about the NES, awards, etc.) must be given to all
new employees by the employer as soon as practicable after the employee starts
employment.
Workers’ compensation
Legislation in each state requires employers to take out workers’ compensation insurance in
respect of their employees and certain contractors. Liability for injury to workers is strict and failure
to take out appropriate insurance constitutes an offence.
7.3 Termination of employment
Most Australian workplaces are governed by a system created by the FWA 2009, which imposes a
number of requirements on employers relating to the termination of employment (among other
areas).
An employer generally must not terminate an employee’s employment unless certain conditions
are satisfied, including giving the employee written notice of the day of the termination. Employees
usually work during the notice period, although it is possible for the employer to pay the employee
in lieu of notice for the hours the employee would have worked had the employment continued until
the end of the notice period.
Where the FWA 2009 does not apply or the employer has additional contractual obligations, the
employer should consider what other obligations may apply to terminating an employee. For
example, employment contracts generally would consider the notice periods required for the
employer to terminate the employee and for the employee to tell the employer of his/her
resignation. Generally, this would be four weeks for either party, although the notice period may be
longer for key employees (e.g. senior management).
On termination of employment, the employer is required to make certain payments to the
employee, including:
•  Any outstanding wages or other remuneration still owing;
•  Any accrued annual leave and long service leave entitlements;
•  Any severance pay entitlements if the employee has been made redundant and the
employee has an entitlement to redundancy under relevant commonwealth workplace
laws, an industrial instrument, employment contracts or other arrangements; and
•  Any other entitlements payable on termination under relevant employment contracts,
commonwealth workplace laws, an industrial instrument or other arrangements.
An employee may be made redundant because the employer no longer requires the role of the
employee to be filled by any employee or because of the insolvency or bankruptcy of the employer.
Where the FWA 2009 applies, an employee generally is entitled to between four and 16 weeks
redundancy pay, depending on the length of service. The employer may choose to pay additional
amounts. Where the FWA 2009 does not apply or the employer has additional contractual
obligations, the employer must consider any other contractual obligations that may apply.
Tax concessions may apply to certain termination payments, mainly to redundancy payments,
payments of unused leave entitlements and payments that qualify as employment termination
payments. These concessions may include a tax-free amount and a lower tax rate. Some of these
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concessions for employment termination payments may not be available for individuals whose
“whole of income” amount exceeds AUD 180,000 in a year.
7.4 Employment of foreigners
A foreign individual may be employed temporarily or nominated for permanent migration to
Australia if he/she is performing a skilled role and if the pay and conditions are commensurate with
Australian employees performing comparable roles.
Australian employers may nominate foreign personnel for migration when they are able to
demonstrate that there is a genuine need for a foreign employee to fill a skilled position within the
business. To nominate foreign personnel, an employer must be an approved business sponsor
with the Department of Immigration and Border Protection. Significant undertakings and obligations
are made by the business at the time of application for sponsorship and for each individual visa
application. The business sponsorship program is framed to ensure that overseas recruitment
does not prevent the longer term improvement of employment and training opportunities for
Australians. Accordingly, employers are obligated to demonstrate expenditure in relation to the
employment, education, training and career opportunities of current Australian employees.
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8.0 Deloitte International Tax Source
The Deloitte International Tax Source (DITS) is a free online database that places up-to-date
worldwide tax rates and other crucial tax information within easy reach. DITS is accessible through
mobile devices (phones and tablets), as well as through a computer.
Connect to the source and discover:
A database that allows users to view and compare tax information for 65 jurisdictions that
includes –
•  Company income tax rates;
•  Historical corporate rates;
•  Domestic withholding tax rates;
•  In-force and pending tax treaty withholding rates on dividends, interest and royalties;
•  Indirect tax rates (VAT/GST/sales tax); and
•  Information on holding company and transfer pricing regimes.
Guides and Highlights – Deloitte’s Taxation and Investment Guides analyze the investment
climate, operating conditions and tax systems of most major trading jurisdictions, while the
companion Highlights series concisely summarizes the tax regimes of over 130 jurisdictions.
Jurisdiction-specific pages – These pages link to relevant DITS content for a particular
jurisdiction (including domestic rates, tax treaty rates, holding company and transfer pricing
information, Taxation and Investment Guides and Highlights).
Tax publications – Global tax alerts and newsletters provide regular and timely updates and
analysis on significant cross-border tax legislative, regulatory and judicial issues.
Tax resources – Our suite of tax resources includes annotated, ready-to-print versions of holding
company and transfer pricing matrices; a summary of controlled foreign company regimes for the
DITS countries; an R&D incentive matrix; monthly treaty updates; and expanded coverage of
VAT/GST/sales tax rates.
Webcasts – Live interactive webcasts and Dbriefs by Deloitte professionals provide valuable
insights into important tax developments affecting your business.
Recent additions and updates – Links from the DITS home page to new and updated content.
DITS is free, easy to use and readily available!
http://www.dits.deloitte.com
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Australia Taxation and Investment 2015
9.0 Contact us
To find out how Deloitte professionals can help you in your part of the world, please visit the global
office directory at http://www2.deloitte.com/global/en/get-connected/global-officedirectory.html or select the “contact us” button at http://www.deloitte.com/tax.
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guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member
firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not
provide services to clients. Please see http://www.deloitte.com/about for a more detailed description of
DTTL and its member firms.
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and private clients spanning multiple industries. With a globally connected network of member firms in more
than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients,
delivering the insights they need to address their most complex business challenges. Deloitte’s more than
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© 2015. For information, contact Deloitte Touche Tohmatsu Limited.