In 2022 Tax Tips

Australian Corporate Taxation Laws

There are a few things that all Australian businesses need to be aware of when it comes to corporate taxation laws. In this article, we will outline the basics of corporate tax in Australia and provide a few tips on how to stay on top of your tax obligations. 

So whether you’re a new business owner or you’re just looking for a refresher, read on for everything you need to know about Australian corporate taxation.

If you’re an Australian business, it’s important to be aware of the country’s corporate taxation laws. Here’s a quick overview of the basics, so you can make sure you’re compliant. The Australian corporate tax rate is 30%, which is relatively high compared to other countries. 

However, there are several deductions and concessions that businesses can take advantage of to reduce their tax bill. For example, depreciation expenses and research and development expenditures are generally deductible against taxable income. 

There are also generous capital gains tax exemptions available for qualifying small businesses. So if you’re looking to start or expand a business in Australia, it’s worth getting familiar with the ins and outs of the corporate tax system.

Did you know that the Australian government levies some of the highest corporate taxes in the world? In this post, we take a look at the current corporate taxation laws in Australia and explore how they might be affecting businesses both large and small. We also offer our top tips for reducing your company’s tax bill so that you can keep more of your hard-earned money!

If you’re a business owner or executive in Australia, it’s important to stay up to speed on the country’s corporate taxation laws. The rules governing how much tax your company is obligated to pay can be complex and confusing, so consulting with an accountant or attorney is always a good idea. In this blog post, we’ll give you an overview of the key points of Australian corporate tax law so that you can make sure your business is compliant.

There are many aspects of Australian taxation law that can confuse business owners. However, it’s important to understand the basics so you can make the most of your business and pay the right amount of tax. This blog post will outline some of the key points about corporate taxation in Australia. We’ll also provide some tips on how to stay compliant with the law.

Did you know that Australian companies are taxed at a different rate than companies in other countries? That’s because Australia has a “flatter” corporate tax rate, which means that all businesses pay the same percentage of tax on their profits. This can be helpful for small businesses that are competing against bigger corporations.

As an Australian resident, it’s important to be aware of the country’s corporate taxation laws. This article will overview the most important aspects of corporate taxation in Australia, including the different tax rates and deductions available. By understanding these laws, you can make sure your business is operating within the confines of the law and taking advantage of all applicable tax deductions

Depending on your business structure, you may be required to pay Australian corporate tax. This article provides a brief overview of the Australian corporate tax system and how it may apply to your business. Note that this information is general in nature and should not be taken as legal advice. If you have specific questions about your taxes, please consult with an accountant or lawyer.

Did you know that the Australian government has some of the most progressive corporate tax laws in the world? In this post, we’ll take a look at what makes the Australian corporate tax system unique and explore how it affects businesses, both big and small. 

We’ll also discuss some of the recent changes to Australia’s corporate tax laws and how they may impact your business. So whether you’re just curious about corporate taxation or you’re looking for advice on how to stay compliant with Australian law, keep reading!

Let’s get started!

Withholding Taxes

Dividends paid to non-residents are exempt from dividend WHT except when paid out of profits of a company that have not borne Australian tax (i.e. unfranked dividends). Dividends include those stock dividends that are taxable. 

The rates shown apply to dividends on both portfolio investments and substantial holdings other than dividends paid in connection with an Australian PE of the non-resident. Unfranked dividends paid to non-residents are exempt from dividend WHT to the extent that the company declares the dividends to be conduit foreign income. 

In certain cases, there is also a deduction to compensate for the company tax on inter-entity distributions. These are on-paid by holding companies to a 100% parent that is a non-resident (see Dividend income in the Income determination section). 

Dividends paid to a non-resident in connection with an Australian PE are taxable to the non-resident on a net assessment basis (i.e. the dividend and associated deductions will need to be included in determining the non-resident’s taxable income. The dividend is not subject to dividend WHT). However, a franking tax offset is allowable to the non-resident company for franked dividends received.

Australia’s interest WHT rate is limited to 10% of gross interest, although the treaty may allow for a higher maximum limit. An exemption from Australian WHT can be obtained for interest on certain public issues or widely held issues of debentures. 

Provisions exist to ensure that discounts and other financial benefits derived by non-residents on various forms of financing are subject to interest WHT. Interest paid to non-residents by offshore banking units is exempt from interest WHT where offshore borrowings are used in offshore banking activities (including lending to non-residents). 

An offshore borrowing is defined as borrowing from (i) an unrelated non-resident in any currency or (ii) a resident or a related person in a currency other than Australian currency. The interest WHT rates listed above for residents in a treaty country generally apply. It is common for Australia’s tax treaties to include a reduced limit for interest derived by certain government entities and financial institutions. One should refer to the relevant treaty for these limits.

Royalties paid to non-residents (except for a PE in Australia of a resident of a treaty country) are subject to 30% WHT (on the gross amount of the royalty) unless a DTA provides for a lesser rate. Tax is generally limited to the indicated percentage of the gross royalty.

For Australian-sourced dividends that are franked under Australia’s dividend imputation provisions and paid to a person who directly holds at least 10% of the company’s voting power, the limit is 10% (although note that Australia does not impose WHT on franked dividends). 

For Argentinean-sourced dividends paid to a person who holds at least 25% of the capital in the company, the limit is 10%. A 15% limit applies to other dividends. 

Source-country tax is limited to 10% of the gross amount of royalties about copyright of literary, dramatic, musical, or other artistic work; the use of industrial or scientific equipment; the supply of scientific, technical, or industrial knowledge; assistance ancillary to the above; or certain forbearances in respect of the above. 

Source-country tax is limited to 10% of the net royalties for certain technical assistance. It is limited to 15% of the gross amount of royalties in all other cases.

A zero WHT rate applies to inter-corporate dividends where the recipient directly holds 80% or more of the company’s voting power paying the dividend. A 5% rate limit applies to all other inter-corporate dividends where the recipient directly holds 10% or more of the company’s voting power paying the dividend. 

A 15% rate applies to all other dividends. A rate limit of 10% applies to interest, except no tax is chargeable in the source country on interest derived by a financial institution resident in the other country or a government or political or administrative subdivision or local authority or central bank of the other country. 

Amounts derived from equipment leasing (including certain container leasing) are excluded from the royalty definition and treated as international transport operations or business profits.

Tax Administration

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1. Taxable period

The Australian tax year runs from 1 July to 30 June. However, a corporation may apply to adopt a substitute year of income, for example, 1 January to 31 December.

2. Tax returns

A corporation (including the head company of a consolidated tax group) lodges/files a tax return under a self-assessment system that allows the ATO to rely on the information stated on the return. Where a corporation is in doubt about its tax liability regarding a specific item, it can ask the ATO to consider the matter and obtain a binding private ruling.

Generally, the tax return for a corporation is due to be lodged/filed with the ATO by the 15th day of the seventh month following the end of the relevant income year, or such a later date as the Commissioner of Taxation allows. However, additional time may apply where the tax return is lodged/filed by a registered tax agent.

3. Payment of tax

A PAYG instalment system applies to companies other than those whose annual tax is less than AUD 8,000 that are not registered for GST. Most companies are obligated to pay instalments of tax for their current income year monthly or quarterly. All companies with a turnover of AUD 20 million or more pay instalments every month.

Instalments are calculated by applying an instalment rate to the amount of the company’s actual ordinary income (ignoring deductions) for the previous quarter. The instalment rate is notified to the taxpayer by the ATO and determined by reference to the tax payable for the most recent assessment. 

The ATO may notify a new rate during the year on which subsequent instalments must be based. Taxpayers can determine their instalment rate, but there may be penalty tax if the taxpayer’s rate is less than 85% of the rate that should have been selected.

Final assessed tax is payable on the first day of the sixth month following the end of that income year, or such later date as the Commissioner of Taxation allows by a published notice.

4. Tax audit process

The Australian tax system for companies is based on self-assessment; however, the ATO undertakes ongoing compliance to ensure corporations meet their tax obligations.  

The ATO adopts the justified trust concept from the OECD. It will seek objective evidence that would lead a reasonable person to conclude a particular taxpayer paid the right amount of tax and tailor its assurance approach based on a taxpayer’s unique business profile.  

This generally means that the ATO will take a risk-based approach to compliance and audit activities, with efforts generally focused on taxpayers with a higher likelihood of non-compliance and higher consequences (generally in dollar terms) of non-compliance. Compliance activities take various forms, including general risk reviews, questionnaires, reviews of specific issues, and audits.

5. Statute of limitations

Generally, the Commissioner of Taxation may amend an assessment within four years after the day of which an assessment is given to a company. However, under the self-assessment system, an assessment is deemed to have been given to the company on the day it lodges its tax return

The four-year time limit does not apply where the Commissioner thinks there has been fraud or evasion, or to give effect to a decision on a review or appeal, or as a result of an objection made by the company, or pending a review or appeal. 

For certain small business entities and, for assessments for income years commencing on or after 1 July 2021, medium business entities (i.e. those with an aggregated turnover of between AUD 10 million and AUD 50 million), a two-year amendment period applies. 

A seven-year review period applies to an assessment to give effect to a transfer pricing adjustment raised for an income year commencing on or after 29 June 2013.

6. Topics of focus for tax authorities

The ATO has a ‘Top 1000’ program that aims to obtain additional evidence to ensure that the largest 1,000 public and multinational companies are reporting the right amount of income tax and GST in Australia. 

This program supports and expands the ATO’s existing compliance approaches. Under the program, ATO teams engage with each taxpayer using tailored compliance approaches to ensure they are reporting the right amount of income tax or identifying tax risk areas for further action.

The ATO periodically releases its compliance focus areas that are attracting its attention. The following are current areas of focus by the ATO for large and multinational businesses:

  • There is a strong focus on shifting profits to lower tax jurisdictions and the cessation of Australian operations, including a focus on cross-border transactions (particularly related-party financing).
  • Structuring and business events include mergers and acquisitions, divestment of major assets and demergers, share buybacks, capital raisings and returns of capital, private equity entries and exits, and initial public offerings.
  • Capital gains tax, losses (capital and revenue), tax consolidation, infrastructure investments, and financial arrangements.
  • GST and property transactions, cross-border issues, and financial supply transactions.
  • Sharing data and intelligence on risks and opportunities, sharing capabilities and strategies, and joint compliance with other jurisdictions.
  • R&D tax incentive.

Tax Return Deadline

Generally, the deadline for lodging your return is 31 October.

As 31 October falls on a Sunday this year, you have until 1 November to lodge.

If you choose to use the services of a registered tax agent, they will generally have special lodgment schedules and can lodge returns for clients later than 31 October. If you use a registered tax agent, you need to engage them before 31 October.

If you’re having difficulties meeting your tax obligations or cannot lodge by 31 October, the ATO advises that you contact it as soon as possible.

If you lodge your tax return and it results in a tax bill, payment is due by 21 November, even if you lodge regardless of whether you lodged before or after the deadline.

What Is The ATO Focusing On When Assessing Tax Returns?

The ATO has laid bare the targets in its sights for people submitting their 2021 tax returns.

A spokesperson said it would be cracking down on:

  • work-related expenses (including double-dipping when claiming deductions and claiming work-related expenses that AREN’T related to work)
  • rental properties
  • capital gains from cryptocurrency, property and shares

The Second Job Tax Rate in Australia

Second jobs usually have a higher tax withheld from your pay because you already have another job from which you are earning income and are claiming the tax-free threshold.

Withholding at a higher rate reduces the likelihood of a tax debt at the end of the income year.

Your new employer will give you a TFN declaration to complete when you start a job.

Centrelink is also a payer, and they will give you this form if you apply for their payments.

When you fill in this form, you can choose whether to claim the tax-free threshold from your employer.

If you:

  • are still earning income from your first employer, even if this is through the JobKeeper Payment, you should not claim the tax-free threshold for your second job
  • are no longer earning any income (including from paid leave), then you are entitled to claim the tax-free threshold from your second job and have a lower rate of tax withheld
  • start receiving income from both employers; you can request that one employer withhold at a higher rate to avoid a tax debt at the end of the year

How to link your MyGov account to the ATO

To link your myGov account to the ATO, go to your myGov account and select ATO from the list of services.

The fastest and easiest option is to select ‘Questions specific to you’. All you will need is your TFN and two basic facts like your superannuation membership and bank account details. You can find a full list here.

The ATO recommends that you select the questions so you can self-serve. Otherwise, you have to call.

FAQs

1. I run my own business and want to know how to minimise my annual tax bill?

If your turnover is less than 50 million dollars, you would be able to access several small business concessions, including:

  • income tax concessions
  • excise concessions
  • Goods and Services Tax (GST) concessions
  • Pay As You Go (PAYG) instalment concessions and
  • Fringe Benefits Tax (FBT) concessions.

The $50 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset – which has a $5 million turnover threshold
  • the capital gains tax (CGT) concessions have a $2 million turnover threshold.

2. I run a small business and prepaid 12 months’ rent on the premises that I operate from in June. Can I claim the whole amount on my tax return even though most of the payment is for next year?

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If your turnover is less than $50 million, you will qualify to claim certain eligible prepaid expenses in the year they were paid.

Some prepaid expenses that can be claimed in the year they are paid are rent, insurance and subscriptions to professional associations.

Eligible expenses will be payments made for 12 months or less, and the period covered ends in the next income year. For example, your prepaid rent qualifies because the period it covers does not exceed 12 months, and that period will end before the end of the next income year. Therefore, the whole amount will be claimable on your tax return this year.

3. I have to buy tools and equipment for my job. What can I claim on my tax?

You can claim expenditure incurred in replacing, insuring and repairing tools of the trade that you use for earning your income. However, if the cost of any item is more than $300, it will have to be depreciated (i.e. claimed over its useful life). 

The amount you can claim will depend on what receipts you have kept and to what extent you use them for income-producing purposes. If you are in a situation where you are wondering what you can claim without receipts, you can claim less than $300 without proof of purchase.

4. I have a job which requires me to be on the road a great deal, and I have to use my car. What do I need to do to claim a tax deduction for my car?

There are two different methods for claiming work-related motor vehicle expenses, and each has different record-keeping requirements. To use the method that ensures you the best claim, it is advisable to keep a logbook and all receipts for expenses (e.g. insurance, registration, repairs, services, tyres, etc.). 

You do not have to keep receipts for petrol as we can work that out for you using an average yearly formula. Your logbook should be kept for a minimum of 12 consecutive weeks, and generally, it will be valid for five years unless there are significant changes in your circumstances. You also need to keep the opening and closing odometer readings for each year. 

You don’t need to use the same claim method each year. However, the choice of method should be based on which is more favourable to you and which you have the appropriate records for. 

If you don’t have a current logbook or have not retained all receipts, you will be limited in which method you can choose. However, you cannot claim any car expenses if your car is salary packaged.

5. My employer expects me to wear specific clothing for work? What would I be able to claim on my tax?

Compulsory uniforms are generally deductible if they identify you as an organisation or employee in a specific occupation. 

A requirement to wear particular colours is not enough to make the clothing deductible (for example, a waiter is required to wear black and white clothing), nor is a requirement to wear a store’s brand of clothing (they are still conventional clothing and not tax-deductible). 

Corporate wardrobes are also deductible if certain conditions are met. For example, the uniform design must be registered with AusIndustry. If the clothing is deductible, you may also claim maintenance costs (laundry, dry cleaning, and repairs).

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