Tax planning in Australia can be complicated. Australia is a high tax jurisdiction with extremely complex and intimidating tax laws. Consequently, when tax planning in Australia, it is normal for a business to frequently engage the professional services of accountants and tax advisors. A summary follows:

Dividends paid to international investing companies are subject to withholding tax of 30%. Interest and royalties paid to a foreign company attract withholding tax of 10% and 30% respectively. By contrast, dividends from an Australian subsidiary to a foreign parent company are not subject to withholding tax. In summary, paying dividends in Australia is not a tax-efficient method of distributing funds from a company.

Unlike the USA, state and territory and local governments in Australia do not impose additional corporation tax. However, Australian states do impose other taxes which impact foreign companies operating in Australia, and which should be considered. These include payroll tax and land tax. For example, in New South Wales an Australian company with annual payroll exceeding A$600,000 suffers an additional payroll tax of 6% payable to the local government.

Individuals resident in Australia (both employees and entrepreneurs) are liable to income tax on employment and personal income sourced worldwide. Examples of income and benefits liable to personal income tax include salary and bonuses, commissions and expenses (e g living allowances, educational expenses etc). A maximum personal income tax rate of 47% is levied on annual income exceeding A$70,000 (US$65,000). Foreign income remitted to Australia is eligible for tax credit if foreign tax was paid on the income. Because Australia is a high income tax country i) there is a high demand for family trusts to shelter personal income ii) residents are negatively geared with mortgages iii) Australians contribute a large proportion of income to State pensions. That said, in 2006 Australia boasted 161,000 US dollar millionaires, the 11th highest globally, up 10% from 2005.

A double tax treaty is signed by two countries to prevent the duplicate taxation of international income. In addition, a double tax treaty reduces withholding tax on payments to non-resident individuals and companies. An Australian company is a popular global corporate structure because of the double taxation treaties Australia has signed with 42 countries, including Argentina, Austria, Belgium, Canada, China, Czech Republic, Denmark, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kiribati, Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Poland, Romania, Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, the UK, the USA and Vietnam.

If annual company sales exceed A$50,000 in a calendar year, an Australian company is obliged to register for goods and services tax (GST) of 10%. Following GST registration, the company is required to clearly illustrate a GST charge on sales invoices. Furthermore, the company will claim reimbursement for GST on corporate expenses. Many entrepreneurs take advantage of this rule when tax planning in Australia.

For more information on tax planning in Australia, email email@healyconsultants.com or call us in Sydney at +61 280 147 568

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