In Australia, the financial year for taxation purposes generally runs from 1st July to 30th June.

Residency
The two fundamentals determining liability to Australian tax are residence and source of income.

A taxpayer, whether an individual or a company, who is a resident of Australia is taxable on income (unless specifically exempted) derived from all sources whether in or out of Australia. A person who is not a resident of Australia is usually liable to Australian tax only on income from Australian sources. The criteria to determine residency status for tax purposes are not the same as the criteria used by the Department of Immigration and Multicultural Affairs.

Generally, you are considered to be a resident of Australia for tax purposes if:

• you have come to Australia and intend to live here; or
• you have actually been in Australia for more than half of the year unless your usual home is overseas and you do not intend to live in Australia.

Personal Income Tax Rates
The general rates of tax applicable to resident individual taxpayers may vary from year to year and are based on a sliding scale whereby higher tax rates are applied to that part of one's income in excess of a particular threshold.

Click here for current tax rates table

Family Tax Assistance, Dependant Rebates and low income benefits are available. Children under 18 are taxed a specified penalty rate on unearned income (investment or trust). Non residents do not have a tax free threshold.

Medicare Levy
Resident individuals pay a 1.5% Medicare levy on their taxable income. There is no income ceiling on the amount of levy payable, however, no levy is payable by certain low income taxpayers.

A 1% Medicare levy surcharge applies to individuals with taxable income in excess of $73,000 (2009-2010) and $77, 000 (2010-2011) and to families with a combined taxable income in excess of $146,000 (2010) and $153, 000 (2011) where they do not take out basic private health insurance (this threshold will increase by an extra $1,500 for the second and each subsequent child).

Partnerships & Trusts
Both these entities are generally not taxed in Australia but rather the net income of the entity is treated as though it flows through the entity and is taxed in the hands of the ultimate beneficiary (individual or company).

Company Tax (Federal Tax)
The company tax is 30%. The financial year is 1st July, to 30th June. Alternate year ends are usually approved to align with foreign parent's year end.

Imputation of Company Dividends ("Franking Credits")
This system provides tax credits on dividends for tax paid by the company. It is a tax incentive to encourage investment in stocks and shares of resident companies by avoiding double taxation on company profits.

Capital Gains Tax(CGT)
CGT applies to the worldwide assets of residents and the Australian situated assets of non-residents. Any gain on a transaction which is subject to CGT is added to the taxpayer's taxable income.

The main features of CGT are that it:

• generally only applies to assets purchased (or deemed to be purchased) after 19th September 1985;
• applies on disposal (or deemed disposal) of the assets;
• is imposed at personal or company rates of tax (which ever is applicable) and
• CGT applies to net capital gains calculated by either:

• using the indexed cost base (i.e. the cost is increased by an inflationary factor) or;
• for individuals, applying a 50% discount to assets held for more than 12 months (for superfunds the discount is 33.33%).

Exemptions to CGT include:

• principal resident and surrounding land (up to two hectares) owned personally;
• proceeds of superannuating fund and life assurance policies;
• gains on certain listed personal use assets, such as collectables sold for $500 or less;
• gains on certain non-listed personal use assets sold for $10,000 or less;
• small business CGT concessions (subject to qualifying) and
• non-residents are not subject to CGT on disposal of listed shares

Inheritance
There is no inheritance tax in Australia. Assets acquired through inheritance and subsequently sold, will be subjected to Capital Gains Tax.

Losses
Generally, income or trading losses can be offset against realised capital gains either in the year in which the loss occurs or carried forward to be offset against future capital gains. Capital losses can only be offset against capital gains.

Fringe Benefits Tax (Federal Tax)
The Fringe Benefits Tax (FBT) legislation taxes employers on certain fringe benefits provided to employees (or their associates).

A fringe benefit is a 'benefit" provided to an employee or an associate of an employee by an employer, an associate of the employer, or by a third party under an arrangement with the employer. The benefit must be provided under an employee/employer relationship for FBT to apply.

A 'benefit" is defined as including any right (including a right in relation to and an interest in, real or personal property), privilege, service or facility (i.e. private use of a motor vehicle).

Benefits exempt from FBT include:

• certain work related items, such as; tools of trade, notebook computers, mobile phones; electronic organisers;
• certain employee recruitment and relocation expenses
• compensation for work related injuries;
• certain minor benefits (i.e. infrequent benefits less than $300)
• assistance provided in times of emergency;
• occupational health and counseling;
• Pre-employment medical checks.

PAYG (Pay As You Go)
Under the Pay As You Go (PAYG) system, tax is deducted by employers from employee pay. Self employed people must also pay PAYG based on the current year income.

Goods & Services Tax - GST
Australia has introduced a GST (or Value Added Tax). GST is levied on goods and services at a rate of 10%. The system introduced allows businesses to claim input credits for GST paid on inputs effectively charging GST only on their value added.

Businesses registered for GST are required to lodge quarterly (or sometimes monthly) Business Activity Statements (a form of GST return).

Payroll tax (State Tax)
This is levied on every employer paying wages, salaries, commissions, bonuses and allowances over a minimum amount. The threshold varies according to each State or Territory.

Superannuation
Employers are required to contribute a prescribed level of superannuation support for employees.

The prescribed level of employer support is 9% of gross wages (certain limits apply).

Taxation on Superannuation Fund Income (Federal Tax)
The tax rate for complying Superannuation Funds is 15% of contributions and net income.

Types of entities
Various entities can be used in order to conduct your businesses: These include;

• sole proprietor
• partnership
• limited partnership
• company
• discretionary trust
• unit trust
• hybrid trust

Land Taxes (State Taxes)
Land tax is imposed by State Government on the unimproved value of certain parcels of land. Land used for rural production and residential land which is the owner's home is usually exempt.

Withholding Tax (Federal Tax)
Payment of dividends, interest or royalties by a resident to a non-resident is subject to withholding tax. The rates of withholding tax vary with the type of payment, and with the ultimate recipient's country.

The rate of withholding tax for dividend payments to "Treaty countries" is usually 15% and 30% for payments to Non-Treaty Countries. Where dividends have imputation credits attached, no withholding tax will generally apply.

The rate of withholding tax for interest payments to "Treaty countries" is usually 10%. In some cases the rate may be up to 25%.

Stamp Duty (State Tax)
Generally stamp duty is imposed on:

• sale, purchase or transfer of unlisted securities
• conveyance of properties
• written agreements

International Double Taxation Agreements
Australia has comprehensive double taxation agreements with most countries as well as limited agreements with others.

These agreements usually provide that the country where people have been contracted to work temporarily has a primary taxing right. The other contracting country, the worker's country of residence, also has the right to claim taxes due but, if it does so, it must allow credit for the amount already paid where the income originated.

McBurney & Partners' provides comprehensive tax planning advice for all business entities and resident and non-resident individuals. Please contact us for further information on any of the topics above or any other matter you wish to discuss.