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Australian Taxation System

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Australian Taxation System

  1. 1. Australia’s Tax History and Current Structure
  2. 2. Brief History of Australia’s Tax System  At the end of the nineteenth century, Australian colonies had distinct tax systems, which were entirely reliant on customs and excise duties.  The design of their tax system was largely driven by administrative concerns, rather than principles of equity or efficiency.  In 1901 Federation, there was a removal of all duties on goods traded between Australian states.
  3. 3.  In 20th century, Australia grew significantly with a GDP of 5% ratio in line with the expanding role of government. (see Chart 1). Source: Budget papers Chart 1: Tax to GDP 1902-2005
  4. 4.  Between 1915 and 1942, income taxes were levied at both the state and federal level, leading to complexity and inequitable taxation of income across states.  In 1942, income taxation was consolidated by the federal government to increase revenue as a war-time measure. As a result, the states’ tax base was reduced (see Chart 1), replaced by Federal government grants.  The states’ tax base was supplemented in 1971, when the then federal government ceded control of payroll taxes to the states.  Taxation revenue had grown to over 22% because of involvement in the war and the introduction of government support programs, such as the widows’ pension in 1942 and unemployment relief in 1944.
  5. 5.  In the middle of 20th century, tax revenues tended to fall.  In 1963-1964, the tax take was around 18% of GDP .  Between 1973 and 1975, tax revenues increased as a result of increased funding for social programs.   Since then there was a modest rise in Australia’s tax take, similar to the experience of many other OECD countries.  Australia’s tax to GDP ratio is currently the eighth lowest among the 30 OECD countries.
  6. 6. Chart 2: Federal government taxation revenue — by tax base Throughout the 20th century, federal government reliance on direct taxes as the primary tax base has increased.
  7. 7.  In the latter part of the 20th century, there was significant base broadening in the income tax system like changes to the tax treatment of fringe benefits, the introduction of a capital gains tax and the removal of accelerated depreciation.  Base broadening in both personal and business taxation has been accompanied by declining rates of taxation.  Other key areas over 25 years were: the interaction between personal and business taxation and other reforms to business taxation changes to the taxation of retirement savings and incomes introduction of a broad based goods and services tax in 2000
  8. 8. Early taxation Australia’s colonies operated as separate economies up until Federation in 1901. The primary sources of taxations were:  Customs  Excise Tax These are being easy to administer and less likely to attract negative attention than direct forms of taxation.
  9. 9. At the end of the 18th century, colonial administrators raised small amounts of revenue through:  War age fees and port entry  Exit fees (effectively taxing imports)  Alcohol From 1813, levying customs duties and excises on necessities also became a source of tax revenue. Tobacco and alcohol were introduced as “sin tax”.
  10. 10. By 1840, customs duties had been extended beyond luxury goods to essential items such as tea, sugar, flour, meal, rice, grain and pulses. In 19th century, excise duties provided much less revenue than customs duties, because of the limited amount of manufactured goods produced in the colonies. Excise duties levied on locally produced goods, equivalent to the customs duties on imports, were also introduced early in the nineteenth century.
  11. 11. The colonies also introduced a number of taxes on services:  liquor retailing fees  auction license fees  stamp duties  probate fees (service charges for the issue of probates and letters of administration by public legal clerks and judges)  stock taxes
  12. 12. In 1851, Australia was known to be in “gold rush” because of the small scale alluvial miners making large amounts of money. New South Wales and Victoria introduced a gold licensing fee for the right to mine allotted sections. Another significant early contributor to colonial revenue was fees on grants of land and leases. In the years leading up to Federation, the main political divide in Australia centered on colonial attitudes towards tariffs.
  13. 13. Taxation and federalism By the time of Federation in 1901, Australia had evolved from frontier-style penal and migrant settlements to:  a modern economy with growing urban and rural populations  rising wealth  demand for a greater role for government The government now introduce new set of tax revenues like:  Direct taxes  Progressive taxes on land  Income on land
  14. 14. The Federation now created a two-tier system of government that centralized control of some functions, while allowing each state sufficient autonomy to meet the social preferences of its constituency. The Australian Constitution allocated the majority of expenditure responsibilities to the states. The states gave up customs and excise duties to secure interstate free trade and ensuring adequate protection for Australian industry (Groenewegen 1985). In 1901, federal tariff and excise duties were introduced
  15. 15. Customs and excise duties were by far the greatest source of taxation revenue at the time of Federation. The Constitution adopted an ‘assumption of “convergence”: that Federation would bring about an equalization of the states’ economies and fiscal capacities’ (Hancock and Smith 2001 page iv). In 1910-1911, Western Australia requested fiscal assistance to compensate for the loss of tariffs, which had been its primary revenue source. In 1911-12, Tasmania was also a recipient of federal government grants, and South Australia became a recipient in the 1920s.
  16. 16. A single income tax The federal government increased its income taxation in the early years of the Second World War to meet the costs of the war effort. Between 1938-39 and 1941-42, federal government income tax revenue grew from 16 % to 44% of total federal revenue. In 1942 the federal government introduced legislation that increased the federal government income tax rates to raise more revenue.
  17. 17. Post-war changes to the state tax base  Land taxes  It was introduced at federal level in 1910 as form of wealth tax and as a means to break up large tracts of under-utilized land.  Land was taxed at progressive rates, based on unimproved value, while the federal land tax was introduced as a flat rate tax.  In the middle of 20th century, landholders were excluded from land tax requirements through exemptions granted to land used for primary production.
  18. 18.  Land tax revenue became less stable, susceptible to the fluctuations of town property markets.  Land taxes were also unpopular as the federal and state taxes were not well integrated with income taxes.  In 1952, land taxes were abolished at the federal level, but still operate at the state and local level, accounting for 24 % of state and local government revenue in 2003-04 (Australian Bureau of Statistics 2006).
  19. 19.  Payroll taxes  The federal government introduced payroll tax in 1941 to finance a national scheme for child endowment.  The tax applied as a 2.5 % levy on payrolls.  In 1971 the federal government handed over payroll taxes to the states, acknowledging that this tax represented the sole possible growth tax available to the states (Mathews and Grewal 1997).  State payroll taxes are now levied at rates ranging between 4.75 % and 6.85 %.
  20. 20.  Estate taxes (death duties)  It was first introduced in the form of probate duties (a tax on property passing by will).  By 1901 estate taxes had been adopted by all of the colonies in Australia.  These duties were an important source of state revenue from the end of the 19th century through the first part of the 20th century.  Estate duties were relatively low cost to administer.  It is more readily accepted than a wealth tax, levied throughout a taxpayer’s life.
  21. 21.  Estate taxes (death duties)  In 1914, the federal government also introduced a progressive system of estate taxes to help fund wartime expenses.  The federal government abolished estate and gift duties in 1979.  By 1984 all estate duties had been removed, both state and federal, recommending refinements to improve the equity, efficiency and simplicity of the tax.
  22. 22. Key developments in federal taxation Developments in federal taxation can be broadly classified into two periods:  Up until the 1970s,which focus on significant changes to the tax system.  1980’s focuses on reforming the tax system to improve equity and efficiency and, more recently, to reducing tax system complexity.
  23. 23. Income Tax  TAX BASE The federal income tax was modeled and applied on the tax system of:  Australian states  United States (global income tax system)
  24. 24. Ordinary income  It is the amounts originally identified by the courts and administrators.  The concept of ‘ordinary income’ was developed both on the form of payment and could be traced to a source such as labor activities, business activities or use of property.  Ordinary income is distinguished from ‘capital receipts’.  The meaning of these constructs derives largely from English equity.  Income tax was an Australian source-only tax and did not apply to the foreign source income of residents.
  25. 25. In 1951, the income tax base had been gradually broadened trough the implementation of the following: 1. Capital gains tax 2. Fringe benefits tax 3. Depreciation 4. Source and residency based taxation
  26. 26. 1. Capital gains tax Prior to 1985, Australia had no general tax on capital gains because most of capital gains are excluded in income tax base.  Based on equity grounds in 1985, capital gains represent an increase in purchasing power similar to real increases in wages, salaries, interest or dividends, thus they should be included in any comprehensive definition of income. (Australian Government 1985 page 77)  The capital gains tax arrangements introduced in 1985 was applied to realized gains and losses on assets acquired after 19 September 1985.
  27. 27.  From 1985 to 1999, an indexation system applied, so that only real and not nominal gains were taxed.  An averaging system was also in place to reduce the impact of the progressive income tax on realized gains accrued over a period of years.  In 1999 a capital gains discount was introduced to promote: • more efficient asset management • improve capital mobility • reducing the tax bias towards asset retention • to make Australia’s capital gains tax internationally competitive
  28. 28.  Under the capital gains discount, individuals and the beneficiaries of trusts pay tax at normal rates on only half of any capital gain realized on an asset held for at least twelve months.  Superannuation funds also receive a one- third discount. Superannuation is a system where money is placed in a fund to provide for retirement of an employer.
  29. 29. 2. Fringe benefits tax  It is an indirect, non-cash benefits provided to employees in addition to wages or salary.  It has been legally taxable in Australia since the inception of the federal income tax.  There is a difficulty in determining the value of this tax thus there was an less universal non-inclusion of most fringe benefits in assessable income by employees (Australian Government 1985)  It is levied on employers, rather than employees, to simplify compliance and administration.
  30. 30.  Fringe benefits are taxed at the top personal tax rate plus the Medicare levy (funds used to pay for health services)  It contains a number of specific exemptions and concessions for particular types of benefits such as work-related items and remote area fringe benefits.  It also provides for concessional treatment of benefits of particular types of organizations like: • scientific and public educational institutions • charitable institutions • public and not-for-profit hospitals • trade unions and religious institutions
  31. 31. 3. Depreciation  Australia has had various forms of accelerated depreciation and investment credits or deductions for much of its tax history.  In the 1980s, adoption of ‘5/3’ depreciation.  In 1999, the accelerated depreciation arrangements were removed and depreciation rates aligned to an asset’s effective life.
  32. 32. Two broad policy objectives of depreciation: • it removed tax-induced distortions to investment decisions • substantially funded a reduction in the corporate tax rate
  33. 33. 4. Source and residency based taxation  In 1915, the federal income tax was introduced as a tax on Australian source income, consistent with the state income taxes, other than Tasmania (Harris 2002).  In 1930 Australia moved to a residence based taxation system, bringing income of residents from foreign sources into the taxation base.  Between 1947 and 1986, Australia operated a bifurcated system.
  34. 34.  Bifurcated system • paid on dividends from portfolio investments, while income from direct foreign investments of residents was exempt  Australia signed its first tax treaty with the United Kingdom, limited its taxing rights over income derived by non-residents.  Australia is required to give relief for foreign tax imposed in accordance with the treaty. They also have a double taxation under domestic law.
  35. 35.  PERSONAL INCOME TAX  In 1915, federal income tax was levied on individual taxpayers at progressive rates  The rates of tax imposed ranged from 3% through to 25%.  Individuals in the top income quintile accounted for the vast majority of personal income tax paid.  The Pay-As-You-Earn (PAYE) system was introduced by the South Australian.
  36. 36. The Pay-As-You-Earn (PAYE) • A system where employers deduct tax from employees’ pay • allowed income tax collection from wage earners in lower income groups, which had been impracticable without a system of taxation at source. • more convenient for taxpayers, created a more even flow of revenue for government and improved compliance as evasion was more difficult with income taxed at source (Groenewegen 1985)
  37. 37.  The scope of the personal income tax was progressively broadened to: • the share of personal income tax paid by the top income quintile had fallen to around half • a reduction in marginal tax rates applying at higher levels of income • top marginal tax rate has decreased over the past 50 years from over 75% in the 1950s to 46.5% (including the Medicare levy) as of 1 July 2006
  38. 38.  The basic tax unit in Australia for income tax purposes has been the individual.  The early income tax systems did recognize family circumstances with a series of deductions (later replaced by credits) for taxpayers supporting dependents.  There has been a greater focus on the overall impact of taxation and benefits on household incomes, particularly those of families.  In 1945 a ‘Social Services Contribution’ was introduced.
  39. 39. Social Services Contribution • A part of income tax revenue for social welfare. • The primary motivation for the distinction was to make increases in income tax more palatable, rather than as a means to separate out social security contributions from general taxation (Mathews and Jay 1972).  In the early 1950s, income taxes and social services taxes were amalgamated allowing a substantial simplification of the income tax return.
  40. 40. COMPANY INCOME TAX  companies were taxed on their profits after deduction of dividends (that is only on retained profits)  dividends were paid out of accumulated profits, shareholders were entitled to a rebate of tax at the lesser of the company tax rate or their personal rate to compensate for tax already paid.  In 1922, a system of taxing all company profits was introduced.
  41. 41.  The non-refundable rebate system was retained and applied to all dividends, so that individuals with higher marginal tax rates received a full rebate for company tax paid.  Individuals on lower marginal tax rates did not receive a rebate for the difference between their marginal tax rate and the company tax rate.  In 1940, rebate of tax on dividends received by individual shareholders and non-resident companies was removed.  The company tax rate was increased and an undistributed profits tax was imposed on public companies.
  42. 42.  In 1987, Australia introduced an imputation system. • resident shareholders receive a credit for tax paid at the company level, thereby eliminating double taxation of dividends • the resident shareholder’s marginal tax rate is below the company tax rate, the excess credit can be used to offset other taxes (for example, against taxes on wages and salary) • Full refundability of excess tax credits for resident shareholders
  43. 43. As shown in Table 1, the company tax rate, like personal income tax rates, has been progressively reduced in recent times, decreasing from a high of 49 per cent in 1986 to the current rate of 30 per cent. The rate reductions have largely corresponded with base broadening measures, such as the removal of accelerated depreciation. Source: Australian Treasury (1974) pp 39-41, Asprey et al (1975), p 225.
  44. 44.  TAXATION OF RETIREMENT SAVINGS  first imposed income tax in 1915  superannuation funds were exempt from paying tax on their earnings provided the fund was set up for the benefit of employees in any business  the taxation levied on end benefits depended on whether they were paid out as a lump sum or an annuity  taxation of superannuation benefits were introduced in 1983
  45. 45. Taxation of superannuation:  the taxation applied to superannuation prior to 1 July 1983 created a significant incentive for taxpayers to convert employment income to lump sum retirement payments  the taxation on lump sum payments was raised to 15 per cent for amounts below a specified threshold, with amounts above this threshold taxed at 30 per cent  Productivity Award Superannuation was created in 1986, industrial agreements which provided for up to 3 per cent of wage increases to be contributed to approved superannuation funds
  46. 46.  Productivity Award Superannuation was cited by Industrial Relations Commission as the basis for its refusal of an application to increase the provision by a further 3 per cent in 1991.  The Superannuation Guarantee (SG) was introduced in 1992, provides for a percentage of an eligible employee’s remuneration to be directed into a superannuation fund by means of a compulsory employer contribution.  The motivation for the SG was twofold (a) to provide a mechanism through which employer contributions could be increased gradually, consistent with the Government’s retirement income policy objectives and the economy’s capacity to pay
  47. 47.  The motivation for the SG was twofold (a)to provide a mechanism through which employer contributions could be increased gradually, consistent with the Government’s retirement income policy objectives and the economy’s capacity to pay (b)to extend superannuation coverage to a larger proportion of the population  The SG rate was phased up from 3% to 9% between 1992 and 2002.  Superannuation coverage has broadened to about 90 per cent of employees under the Superannuation Guarantee.
  48. 48. Policies designed to encourage individuals to voluntary superannuation contributions: • Government co-contribution for low income workers • Superannuation splitting for eligible couples • Introduction of choice of fund
  49. 49. Myriad of changes to the superannuation taxation arrangements: • the removal of taxation on end benefits received by most individuals aged 60 or older • improve the incentives to work and save, promoting growth through workforce participation and increased provision for retirement
  50. 50. INDIRECT TAXES  Indirect taxes have grown relative to economic activity, largely in response to increasing revenue demands brought about by periodic events, the 1930s Depression and the increasing role played by the public sector.  the importance of alternative indirect taxes, particularly excises and more broadly based consumption taxes
  51. 51. Chart 4: Evolution of indirect taxes in Australia since Federation
  52. 52. WHOLESALE SALES TAX  It was introduced in 1930.  The WST was levied at the wholesale level to minimize the number of taxing points.  It was introduced at a rate of 2.5 %, but within a year the rate had been increased to 6 %, and by 1940 the rate had been further increased and a multiple rate structure introduced.  The WST was levied on many classes of consumables, but provided preferential treatment for food, primary produce and some primary industry inputs (Smith 1999).
  53. 53. Table 2: Wholesale sales tax rates and schedules
  54. 54. GOODS AND SERVICES TAX  In July 2000, the federal government introduced a goods and services tax (GST), based on the value-added tax (VAT) model, as part of a broader package of taxation reform.  The GST replaced the WST and a range of inefficient state taxes, in conjunction with reforms to federal financial relations.  Revenue from the GST is paid to the states and territories, providing a stable and growing source of revenue and removing their reliance on general assistance grants from the federal government.
  55. 55. State taxes that were, or are in the process of being, abolished include Financial Institutions Duty: •debits tax • stamp duty on marketable securities •convincing duties on business property • stamp duties on credit arrangements •Installment purchase arrangements and rental (hiring) agreements • stamp duties on leases • stamp duties on mortgages •bonds, debentures and other loan securities •stamp duties on cheques • bills of exchange and promissory notes and accommodation taxes.
  56. 56.  The introduction of the GST was also accompanied by significant changes to personal income taxes and social security payments like: • reductions in personal income taxes • large increases in government payments to families, pensioners and low income earners. • adjustments to excise taxes and some specific indirect taxes to adjust for the removal of the WST.
  57. 57.  MODERN CUSTOMS AND EXCISE DUTIES  excise duty is imposed on the domestic manufacture of petroleum fuels, certain biofuels, alcoholic beverages other than wine, tobacco products, crude oil and oils and lubricants  Excise and customs duties have remained relatively steady as a revenue source, but have declined in importance as a proportion of tax revenue over the last century.  In 1909, customs duties have declined in importance in comparison to excise duties, reflecting both increased domestic production of goods and a decline in the rates of duty applied to imports.
  58. 58. Excise controls in Australia includes: • include licensing of parties that are engaged in the manufacture of excisable goods • issuing permissions that govern dealings with the goods • the classification of those goods (where classification determines the rate of excise liability).
  59. 59. RESOURCE TAXATION  The federal government’s responsibility for the extraction of resources is generally limited to waters between three and two hundred nautical miles seaward of the low water line along the coast.  Resource taxation occurs by way of royalty.  Most taxed resources: 1. land and within the coastal boundary 2. petroleum resource 3. crude oil
  60. 60. The petroleum resource rent tax (PRRT) PRRT was introduced to generate an equitable return to society from its offshore petroleum resources, while also reducing potential distortions to offshore petroleum exploration and development. The North West Shelf and the Joint Petroleum Development Area in the Timor Sea are the only offshore areas which are not subject to the PRRT regime. It is a tax on ‘above normal’ profits derived from upstream petroleum production, by the point at which a saleable commodity is first produced (crude oil, condensate, natural gas, and methane).
  61. 61.  Taxable profits are defined to be net of the recovery of all project related exploration, development and operating expenditures.  Where expenditure is carried forward to be offset against future income, its value is compounded at an annual rate intended to broadly reflect the required rate of return for undertaking such expenditure.  A project will only become PRRT assessable once the owners have earned a ‘normal’ rate of return.  PRRT is levied at a relatively high but constant rate of 40%. Payments of PRRT are deductible for company income tax purposes in the year assessed.
  62. 62. Australia’s Current Tax Structure
  63. 63. Basis of Taxation: Federal System of Government Commonwealth Government State Governments Local Government - Municipalities Australian Constitution - division of powers between Commonwealth and State governments
  64. 64. Sources of Law:  Statutory Law - enacted by Parliament – Income Tax Assessment Act 1997 (ITAA 97), Income Tax Assessment Act 1936 (ITAA 36), Fringe Benefits Tax Assessment Act 1986 (FBTAA 86), A New Tax System (GST) Act 1999 (GST ACT).  Common Law or Case Law - made by the Judges - Commonwealth Courts and State Courts  Administrative statements - Rulings by the Australian Taxation Office (ATO)
  65. 65. Commonwealth Taxes: Income Tax - Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997 Capital Gains Tax – Capital gains taxed as income from 20 September 1985 Fringe Benefits Tax – FBTAA 1986 Goods and Services Tax - GST from 1 July 2000 is at 10%
  66. 66. State Taxes: Pay-roll tax - differs between States Victoria - 5.15% if pay-roll over $550,000, 3.5% if value over $2,700,000 Land Tax - value of land only, differs between States Stamp Duty - tax on documents, transfer of land, mortgage, purchase of equipment.
  67. 67. Commonwealth Revenue: Medicare levy – is not a tax but a levy on income and all individual taxpayers must pay 1.5% of taxable income for medical care Companies and Trusts do not pay levy because beneficiaries and trustees do pay If individual taxpayer earns more than $70,000 as single or $140,000 with one child then, he must pay extra surcharge if no private medical insurance (1%)
  68. 68. Private medical insurance – provides relief for government hospitals Tertiary Education is paid by individuals as a Higher Education Loan Program– HELP, this are collected by ATO along with Medicare levy on individual tax return HESA – this are percentages depending on taxable income ,if income is over $41,595 4% is the rate of tax Primary and secondary education must also pay but only in a small charge
  69. 69. The following has no tax: Death duty – only capital gains tax applies Gifts – it is not an income Inheritance tax Sales tax – it was replaced by GST Poll tax –
  70. 70. Australian Income Tax: Income tax is the main source of revenue for Commonwealth government Income tax paid by individuals are based on progressive rate of tax and marginal rates Company tax - flat rate of 30% Partnerships and Trusts - individual rate Superannuation funds - flat rate 15% Capital gains – with discount over 12 months
  71. 71. Income Tax Legislation: Section 4-1:Who must pay income tax? Income tax is payable by each individual and company, and by some other entities 4-10(1) You must pay income tax for each year ending on 30 June, called the financial year . 4-10(2) Your income tax is worked out by reference to your taxable income for the income year . ( a)  for a company, the income year is the previous financial year;
  72. 72. (b)  if you have an accounting period that is not the same as the financial year, each such accounting period or, for a company, each previous accounting period is an income year. The Commissioner can allow you to adopt an accounting period ending on a day other than 30 June. See section 18 of the Income Tax Assessment Act 1936 .
  73. 73. Income Tax Formula:  Gross Income Less: Exempt income (s 6-20 and Div 11) = Assessable Income (s 6-5 and s 6-10) Less: Allowable Deductions (s 8-1 & Div 25) = Taxable Income x Tax rate + Medicare levy (1.5%) + (surcharge 1% if applicable) = Tax payable - tax offsets + rebates = Tax refund or payment to ATO
  74. 74. Assessable Income: 6-1(1) -  Assessable income consists of ordinary income and statutory income. 6-1(2) - Some ordinary income, and some statutory income, is exempt income. 6-1(3) -  Exempt income is not assessable income. 6-1(4) - Some ordinary income, and some statutory income, is neither assessable income nor exempt income - NANE
  75. 75. Ordinary Income (s 6-5. ITAA 97)  6-5(1) Your assessable income includes income according to ordinary concepts, which is called ordinary income .  6-5(2) - If you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.  6-5(3) - If you are not an Australian resident, your assessable income includes: the ordinary income you derived directly or indirectly from all Australian sources during the income year; and
  76. 76.  6-10(1) - Your assessable income also includes some amounts that are not ordinary income.  6-10(2) - Amounts that are not ordinary income, but are included in your assessable income by provisions about assessable income, are called statutory income .  6-10(4) - If you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia.  6-10(5) If you are not an Australian resident, your assessable income includes:   your statutory income from all Australian sources
  77. 77. Residency: Australian residents subject to income tax on all income - ordinary and statutory – on a worldwide basis. Non-residents subject to income tax on Australian sourced income – ordinary and statutory. Temporary residents – Division 768 – income tax only on income sourced in Australia – foreign income exempt – territorial basis.
  78. 78. Why is distinction important? Only Australian residents obtain tax- free threshold - $6,000 or $11,000 with low income rebate. Non-residents are subject to tax payable on first dollar – 29% Non-residents do not obtain rebates and offsets – dividend imputation. No Medicare levy for non-residents.
  79. 79. Residence of Company: Section 6(1)(b)- a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia
  80. 80. Three tests for residence of a company: 1. place of incorporation 2. carries on business in Australia and its place of central management and control is in Australia – both limbs must be satisfied – TR 2004/15 – distinction between passive and active business 3. controlling shareholder test and carries on business in Australia – more than 50%
  81. 81. Tax File Number (TFN):  Once you arrive in Australia, you will be required to apply for an Australian Tax File Number (TFN).  You need an Australian Tax File Number to open up bank accounts, for employment and to file an income tax return.  TFN can be filed for two or three weeks, If you delay the application of a tax file number it could hold up you opening up bank accounts and finding employment.
  82. 82. Source of Income:  Sale of goods – where business activity takes place (e-commerce)  Sale of property – real property – place where located  Services - place where performed or contract – French and Efstathakis  Interest – place contract made or money advanced – withholding 10%  Dividends – Esquire Nominees – source place where company derived profit – withholding tax applies  Royalties – Australian source if paid to foreign owner of the IP – withholding tax applies
  83. 83. Tax Rates: Resident for Full Year Taxable income Tax on this income $1–$6,000 Nil   $6,001–$21,600 17 cents for each $1 over $6,000 $21,601–$52,000 $2,652 + 30 cents for each $1 over $21,600   $52,001–$62,500 $11,772 + 42 cents for each $1 over $52,000   $62,501 and over $16,182 + 47 cents for each $1 over $62,500  
  84. 84. Non- Residents for Full Year: Taxable income Tax on this income $1–$21,600 29 cents for each $1 21,601–$52, 000   $6,264 + 30 cents for each $1 over $21,600 $52,001–$62,500   $15,384 + 42 cents for each $1 over $52,000 $62,501 and over   $19,794 + 47 cents for each $1 over $62,500
  85. 85. Capital Gain Tax:  Capital gains tax (CGT) is a component of income tax that applies when a CGT event occurs. The most common event occurs when certain types of assets that you own are bought and sold for a profit (this does not include your primary residence).  CGT affects your income tax liability because your assessable income includes any net capital gain you made in the income year (unless you have prior year capital losses to offset). Any capital loss for this year is generally held to offset against future capital gains.
  86. 86. What is a CGT asset? Assets include: land and building (for example, investment properties) shares units in a trust or managed investment fund Collectables (jewelry)

Notas do Editor

  • This chapter will define key tax vocabulary and concepts that underlie school funding issues. This slide introduces the terms to be defined in the following slides and expanded in future chapters.