Tax is an important consideration for any potential investment into Australia. Given the complexity and changing nature of taxation, it is recommended that professional advice be sought in relation to specific circumstances. Importers should also seek specific case-by-case advice in relation to Customs duty.
The Australian tax system consists of a mix of direct and indirect taxes levied at both the national (Federal or Commonwealth) government level and state level. Some local government taxes may also apply.
Taxation Comparison & Mix
The Australian tax mix is broadly similar to most OECD countries. Like most countries, Australia raises the majority of its taxation revenue (62.3 per cent in 2010) from direct taxation, which is levied on incomes — wages, salaries, payrolls and profits. This is close to the OECD average of 61.6 per cent. The remaining 37.7 per cent of Australia’s taxation revenue is derived from indirect taxation, including the goods and services tax, excise and customs duties, and property taxes. The OECD average is 38.4 per cent. Unlike many other markets, Australia does not levy social security taxes, though it does impose a Medicare Levy (currently 2.0%) and, in certain cases, a Medicare Levy Surcharge (currently up to 1.5%). [Source: The Treasury, Pocket Guide to the Australian Tax System]
The World Bank Doing Business 2015 ranks Australia 39th out of 189 countries for ease of tax payments with a total tax rate of 47.3% of commercial profits (OECD Average 41.3%) across 11 payments taking 105 hours. World Bank Group Doing Business - Australia
Federal taxes are administered by the Australian Taxation Office (ATO) and include:
- Income tax. Company tax rates
- Goods & Services Tax (GST). Similar to Value Added Tax (VAT) GST is a broad-based consumption tax on the sale of most goods and services in Australia and on imported goods. (Currently 10% on purchase). Goods & Services Tax New GST laws for low-value imports will apply from 1 July 2018. GST on low value imported goods.
- Capital Gains Tax (CGT) on gains from the sale of assets. Capital Gains Tax
- Fringe Benefits Tax (FBT) is imposed on the value of non-cash benefits provided by employers to employees.
- Medicare Levy public health insurance levy on taxable incomes & an income-based Medicare Levy Surcharge (MLS: for those who do not purchase private health insurance).
- Superannuation (Pension) employer payments for employees' pensions
- Transfer Pricing regulations are rules which govern internal pricing when goods and services are transacted by commonly-controlled companies between Australia and other countries.
- Customs Duty is payable when relevant goods enter Australia.
- Excise Duty is imposed on alcohol, tobacco, fuel and petroleum products produced or manufactured in Australia.
State and Territory Governments impose taxes on various state-based or connected transactions within its borders. State and Territory taxes and duties are not generally consistent throughout Australia and must therefore be considered on a state-by-state basis. State taxation generally consists of:
- Stamp duty on certain transactions such as property or shares.
- Payroll Tax imposed on employers over a set gross payroll threshold
- Land Tax on combined value of land owned.
- Motor Vehicle Duty payment on vehicle initial or annual registration.
Local councils (shire & municipal councils) levy rates on properties (both business and residential).
In Australia the financial year runs from 1 July to 30 June of the following year.
Tax Registrations are required when incorporating a company in Australia, if that company is intending to trade.
Taxation is based on a self-assessment model and individuals and companies are required to lodge an annual Income Tax Return for the financial year. The ATO may undertake audits of tax returns. Other tax obligations and requirements may also apply such as GST and PAYG.
- Withholding taxes are withheld by the employer or payer and are payable to the ATO on a number of payment types and situations. This includes dividends, interest or royalties which are paid to a foreign entity.
- Pay-as-you-go (PAYG) regulations apply in a number of situations including the witholding of employee salary or wages representing the employee's income tax payable and which must be remitted to the ATO.
Australia has tax treaties with other countries to foster cooperation between Australia and other international tax authorities. The Treasury's Tax Treaties site provides information on tax treaties that Australia has, including country, status, withholding tax rate limits and principles of implementation.
The Treasury is responsible for assessing and advising on the general design of the tax system and its components, and retirement income policy, in relation to economic efficiency, equity, income distribution, budgetary requirements and economic feasibility.
The Australian Taxation Office (ATO) is the principal revenue collection agency of the Australian government.
State & Territory governments taxes are levied by the relevant revenue collection agency:
- NSW Office of State Revenue Sydney
- QLD Office of State Revenue, Brisbane (City East)
- VIC State Revenue Office Melbourne
- WA Office of State Revenue, Perth
- TAS State Revenue Office Hobart
- Revenue SA, Adelaide
As part of the Department of Industry & Science's policy to support growing and sustaining innovative, competitive and export-orientated Australian industries, the R&D Tax Incentive provides targeted research and development (R&D) tax refunds and offsets designed to encourage companies to engage in R&D.
The R&D Tax Incentive has two core components. Eligible entities engaged in research and development may be eligible for:
- a 43.5% refundable tax offset for eligible SMEs with an annual turnover of less than $20 million, or
- a 38.5% non-refundable tax offset for all other eligible entities (entities may be able to carry forward unused offset amounts to future income years).
A "refundable" tax offset is first applied to any tax due and the balance, if any, is refunded as a payment to the company; a "non-refundable" offset may only be applied to reduce any current tax liability (but can be carried forward).
The R&D Tax Incentive aims to:
- boost competitiveness and improve productivity across the Australian economy,
- encourage industry to conduct research and development activities that may not otherwise have been conducted,
- provide business with more predictable, less complex support, and
- improve the incentive for smaller firms to engage in research and development.
- Minimum R&D Expenditure: $20,000
- Capped concessional offset: $100 Million (since July 2014)
Oversight & Administration
AusIndustry (on behalf of Innovation Australia) and the ATO jointly administer the R&D Tax Incentive program. AusIndustry registers your R&D activities and ensures their compliance with the legislation. The ATO determines the eligibility of the expenditures you are claiming for your R&D activities.
Eligibility: Entities, Activities & Expenditures
The R&D Tax Incentive is available to:
- Australian-incorporated companies,
- Foreign-incorporated companies registered & resident in Australia for tax purposes, and
- Foreign-incorporated companies resident in a foreign country with a double tax agreement with Australia and which carry on business through a permanent establishment of the body corporate in Australia.
Determining "eligible expenses" can be quite a complex area and it is often advised to engage the services of a professional advisor. Activities are only eligible if they meet AusIndustry's definitions of R&D activities which, in summary, are:
- Core R&D Activities, and
- Supporting R&D Activities.
Core R&D activities are experimental activities:
▶ whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
- is based on principles of established science; and
- proceeds from hypothesis to experiment, observation and evaluation, and leads to logical conclusions; and
▶ that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).
Certain activities are excluded from being considered core R&D activities and may only be considered as supporting R&D activities.
Each of the three key requirements (highlighted above, part of the legislative requirements) must be met in order to register a core R&D activity under the program. If an activity does not qualify as a Core activity, it may still be eligible to be a Supporting R&D Activity.
Supporting R&D activities are activities directly related to core R&D activities. However, if such activities
▶ produce, or are directly related to producing, goods or services, or
▶ are listed as an activity excluded from being a core R&D activity,
they must be undertaken for the dominant purpose of supporting core R&D activities.
In essence, the two key aspects to consider if assessing whether your activities qualify as supporting activities are whether they are directly related (to the Core R&D activity) and (if a production cost or excluded as a Core activity) have "supporting the R&D tasks" as a dominant purpose.
There is excellent guidance - in particular, a publication entitled The R&D Tax Incentive: A Guide to Interpretation - available on the AusIndustry Single Business Service website.
R&D Tax Incentive Snapshot